[Start Economy] Lee Chang-yong who refuted the "interest rate practical theory" head on...After November's additional cut due to growth shock,

■ Host: Anchor Lee Jung-seop, Cho Ye-jin, Ang
■ Appearance: Seo Eun-sook, professor of economics and finance at Sangmyung University

* The text below may differ from the actual broadcast content, so please check the broadcast for more accurate information. Please specify [YTN News START] when quoting.

[Anchor]
We deliver the latest economic news quickly and kindly. Start Economy, today we will be with Seo Eun-sook, a professor of economics and finance at Sangmyung University. Welcome, professor. Lee Chang-yong, governor of the Bank of Korea, held a luncheon meeting with reporters on the G20 trip in Washington, DC. By the way, I refuted the "interest rate practical theory" head on here, where is the background?

[Seo Eun-sook]
First of all, we need to see why the interest rate practical theory came out. On the 24th, Korea's economic indicators for the third quarter of this year were announced. However, the original forecast was that it would achieve a growth rate of about 0.5%, but the result was that it grew only 0.1%, far below that. So, we originally achieved negative growth in the second quarter. So, although it escaped from this shock in a quarter, it showed lower-than-expected growth and should have cut interest rates in advance to revitalize domestic demand. From the Bank of Korea's point of view, regarding the policy of lowering interest rates due to prices, it has not been possible to lower interest rates due to high prices, and since the price has been set, real estate prices, which are chronic problems we have, have remained very high. Then, household debt grows at a very rapid pace, which is actually a factor that negatively affects the stability of the financial system. One of the very important roles of the Bank of Korea is price stability, but the second is financial stability. So, as I focused on this part, the government's policy direction was also to curb household debt. That's why I haven't lowered interest rates, but the economic forecast is not as good as I thought and the performance is very poor, which seems to be criticized for this.
[Anchor]
As you said, monetary policy has no choice but to look at the economy, financial stability, and exchange rates. Among them, the exchange rate was chosen as a variable for determining interest rates in November. What's the reason?

[Seo Eun-sook]
The exchange rate is approaching as if it will continue to exceed the 1,400 won range. The exchange rate is much higher than we thought, and the most worrisome part is that the rate of increase is very fast and the volatility that we often talk about in the market is great. Therefore, this is the part where he announced that he had to consider this part when determining interest rates.

[Anchor]
When Trump was elected in the past, it was well over 1,400 won. It's up to 1,388 won now, so how long will this strong dollar continue?

[Seo Eun-sook]
In fact, the election results in the United States are very important. Now, the market is starting to make high predictions about Trump's election, and there are some of Trump's policies: expanding fiscal spending or spending money. Then protectionism. They're saying they're going to impose tariffs on the part they import. If you put tariffs on it, the import price will go up. If that happens, it affects the rise in consumer prices. Then, in the case of the Fed in the United States, prices are also under upward pressure to raise interest rates on this part, so we can consider this and see it as being affected.

[Anchor]
And it will be released tomorrow in the minutes of the Monetary Policy Committee in September, and what we talked about here is likely to affect the direction of interest rates in the future. Next month, the Monetary Policy Committee has one more left this year. What's going to happen?

[Seo Eun-sook]
When talking about the need to cut interest rates now, the biggest consideration is the revitalization of domestic demand. We lowered 25BP once. Now in October. What we are predicting when interest rates are cut is that as market rates are cut, deposit rates fall, but loan rates also fall, so we can predict activation of consumption and investment, and accordingly, the economy has a cycle of growth together. The problem is that if the base rate and the policy rate have fallen, the market rate, in other words, the loan rate, should also fall due to the ripple effect of monetary policy, but due to the household debt suppression policy, the loan rate cannot be lowered and the additional interest rate is attached. As loan interest rates continue to remain high, there is a limit to boosting consumption, so there is a need to cut interest rates to boost domestic demand. On the other hand, even if the Bank of Korea lowers the policy rate, if the base rate is lowered, the market rate is already moving together under the influence of the U.S. market. But the loan interest rate, which can directly affect consumption, is called the stress addition rate, so we set it high at the later additional rate. Therefore, unless it falls, the part connected to this part becomes weak, but the loan interest rate does not fall together just because the interest rate is lowered, so this can be done by lowering the loan interest rate in policy. Because the U.S. is now considering the possibility of prices going up again as uncertainty grows so high, even though I don't know who Trump will be elected. As that happened, the Fed also said it would adjust the pace of the rate cut. In that state, if we lower interest rates again, we have to consider interest rate differences, and the other problem is that there was an issue before the exchange rate. If we cut interest rates, the won's weakness will be strengthened.
So it's very difficult to cut interest rates because of that. When I cut interest rates last time, five Monetary Policy Committee members predicted that interest rates would be frozen for about three months. So everyone is predicting that interest rates will probably be cut in November.

[Anchor]
The Bank of Korea is likely to have a deep problem because it has no choice but to consider all variables internally and externally. Let's move on to the next topic. We're going to talk about Samsung, but Samsung is in crisis right now. In the midst of this, Chairman Lee Jae-yong is celebrating his second anniversary in office. However, there were no inauguration events or messages, but there was a prospect that there would be a large-scale personnel appointment internally.

[Seo Eun-sook]
It's been two years since Samsung Electronics Chairman Lee Jae-yong took office, and everyone points out that the business environment is changing very rapidly and the competitiveness of the main business is deteriorating as the company becomes very difficult. That's why Samsung Electronics' crisis theory is coming out now. In fact, the memory semiconductor part, which has been ranked No. 1 for more than 30 years, is for artificial intelligence, and we are called HBM memory. I was allowed to chase SK Hynix with this part at the forefront. Therefore, not only this part but also the system semiconductor part is planning to achieve the first place, and it is evaluated that it is very difficult to grow because it is blocked by the big wall of Taiwan's TSMC. So basically, large companies, especially Samsung, say November and December, so they say year-end greetings. And reorganize. I think they expect this to be much more performance-based than in previous years.

[Anchor]
Chairman Lee Jae-yong seems to be scrambling to overcome the crisis. He met with Hyundai Motor Chairman Chung Eui-sun and Toyota Chairman Chung. In the midst of this, the mobile phone launch event was even delayed.

[Seo Eun-sook]
On the 25th, we released the Z Fold SE, which Samsung explained was the most ambitious Galaxy Fold phone of all time, on the 25th. However, it is evaluated as increasing market uncertainty by releasing it late after seven hours of scheduled sales. I think the focus is on why the company announced this late in a very bad atmosphere. So, in fact, Samsung has been producing Fold phones since 2019, and this is a situation where Chinese companies are chasing very scary right now. And for the second consecutive quarter, it lost the No. 1 position in the market share of fold phones to China. However, we promised to sell Samsung Dotcom from 9 a.m. and through the online mall of the three mobile companies as we usually can buy new phones, but as it came out at 4 p.m., it seems that it is more strange for the market not to release official data and official data on why it was delayed. Analysts say that there was a conflict between the development department and the sales and marketing department over whether to supplement some functions.

[Anchor]
Samsung, the stock price is also too weak right now. I need to break the flow quickly, is there an opportunity to change the atmosphere? What else do you think it would be?

[Seo Eun-sook]
In fact, the part that most market participants want is that the business environment is changing very rapidly, but shouldn't there be a clear strategic direction or something like that at a strategic level? These are what the market is asking for. Stock prices are directly linked to a company's performance. However, the market seems to believe that there is not much room for continuous improvement in performance. So, as I said earlier, we allow SK Hynix to chase down in the HBM part. We have completed preparation for the 4th generation HBM, and we are planning to unveil next-generation products with higher capacity and performance. If the Nvidia and HBM parts try to go in, they have to pass the quality test, but there is no news that it has passed yet. So that part is still very uncertain. Next, the system semiconductor sector is also very poor. So, large-scale facility investment is concentrated around the consignment production business foundry business, but this can be supplied only when Nvidia, Apple, Intel, and major customers are secured. I think the performance is insufficient in that area. And in the general-purpose memory market, Chinese companies are also allowed to chase. So, as I said earlier, the market's analysis is that there is a lack of strategic judgment. Rather, SK Hynix's stock price is expected to continue to rise. Samsung Electronics' stock price is now being sold continuously for 33 business days by all foreigners. It's a situation where they're selling it. So I think the market is predicting that it will be difficult to overcome quickly.

[Anchor]
As you just mentioned, SK Hynix is flying much, so Samsung Electronics continues to sell. The market capitalization of the two is narrowing?

[Seo Eun-sook]
According to the Korea Exchange on the 27th, Samsung Electronics' common stock market as of the 25th and the market ended on the 25th, accounting for 15.85% of the KOSPI's total market capitalization with 333.71 trillion won as of the 25th. This is the lowest market capitalization in 8 years and 4 months since June 14, 2016. On the other hand, SK Hynix's market capitalization was announced at 14.328 trillion won, and it was announced that the difference itself was the smallest in 13 years and 3 months since the difference in market capitalization between the two companies on September 18, 2011.

[Anchor]
Finally, let's take a look at the New York Stock Exchange. Which schedule should I pay attention to this week?

[Seo Eun-sook]
This week, among the seven tech giants we call Magnificent7, Google parent Alphabet, Microsoft and Apple and Amazon earnings will be announced. According to these announcements, attention is being paid to what will happen to technology stocks. Next, it is also interesting to see if Nvidia will be ranked first in market capitalization based on its closing price. Major economic indicators this time will also be announced in large numbers. So, the employment indicators will be released first. Various indicators related to employment are being announced, and breaking news of the U.S. growth rate in the third quarter is also being announced. Then, the price index of personal consumption expenditure PCE price index, which may be of the Fed's most interest, will be released.

[Anchor]
It will be a difficult week because the market has a lot to pay attention to. So far, I have been with Seo Eun-sook, a professor of economics and finance at Sangmyung University. Thank you.