[News UP] Will Interest Rates Lower After 3 Years and 2 Months? At a crossroads...Announcement in a minute.

■ Host: Anchor Cho Jin-hyuk
■ Starring: Seok Byung-hoon, professor of economics at Ewha Womans University

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

[Anchor]
Attention is being paid to the direction of the benchmark interest rate, which has been frozen since February last year, and we will look into what decisions the Bank of Korea will make today with experts. With Seok Byung-hoon, a professor of economics at Ewha Womans University. It's in a moment. The Bank of Korea's Monetary Policy Committee will announce the base rate. In the market, cut and freeze, which side is the main weight?

[Seok Byung Hoon]
The market is weighing in on the cut. A survey of 100 bond management experts by the Financial Investment Association found that 64% expected a key rate cut. So, as you can see here, market experts expect the Fed to cut its benchmark interest rate by a big cut, half a percentage point, and given that domestic consumer inflation has already reached 1%.

[Anchor]
Was the professor also looking forward to Inha?

[Seok Byung Hoon]
After the decision to freeze the base rate last time, the governor of the Bank of Korea said in an interview that the base rate was frozen because real estate prices are soaring mainly in household debt and the metropolitan area. Based on that, I thought that we should freeze it for that reason only. However, given the current atmosphere, I think it is likely to cut the price.

[Anchor]
If you actually cut it, it will be cut in 38 months, so it will be cut in 3 years and 2 months. I'd like to look at the impact of the cut on our economy. First of all, what are the positive effects?

[Seok Byung Hoon]
The most positive reason is that a positive effect unnecessarily causes a slump in domestic demand, eliminating the need to pay for a recession. Because consumer price growth entered 1.6% in September compared to the same month last year. Then the core inflation rate, excluding food and energy, which shows the main trend of prices, also reached 2.0%. The Bank of Korea's price stabilization target is 2% compared to the same period last year. This is the basis for supporting that it is now possible to achieve the price stability target. So there is no reason to pay for the stagnation of domestic demand by continuing to freeze the base rate unnecessarily when price stability can be achieved. So, if the Bank of Korea cuts the benchmark interest rate, the loan rate and the deposit rate will be lowered, so households will increase consumption and businesses will increase investment to restore domestic demand, which will have the effect of increasing economic growth, which can revive the economy. I'm looking at it like this.

[Anchor]
You said you are looking forward to revitalizing the economy, but if so, I think there will definitely be negative aspects. You also pointed out the burden of household loans a little while ago, but if interest rates are cut, isn't there a possibility that this part will be stimulated?

[Seok Byung Hoon]
Of course, I think it will be stimulated. Because the Bank of Korea decided to freeze it last time because real estate prices rose sharply in Seoul and the metropolitan area, which encouraged demand and attracted the soul. He pointed out that this increases household debt by taking out loans. It believes it is likely to re-stimulate demand and boost real estate prices and household boot growth. In fact, if the Bank of Korea cuts the benchmark interest rate this time, the reason is that the growth of household debt in the five major commercial banks has declined by September and early October, followed by rising housing prices and slowing housing transactions around Seoul, which has stabilized the real estate market and household loan growth to some extent. But I still think it's too early to feel safe. The main reason is that this is an important indicator of the amount of new mortgage treatment for the purpose of purchasing a house on average per day. These are the people who got a new mortgage to buy a new home, representing zero demand. But last month, the Chuseok holiday was long. Excluding that, for the purpose of purchasing a daily average new mortgage home. If you look at the average amount received, it's the highest ever. So the average was 393.4 billion won. It's the highest level ever. So there's still a lot of demand. So if the base rate is cut, the loan rate will go down accordingly, so it is likely to stimulate demand again.

[Anchor]
If so, I think I've seen a lot of articles recently saying that real estate housing prices are declining. As you said, it is an optical illusion that is hidden by some kind of holiday effect, should I look at it like this?

[Seok Byung Hoon]
There are two reasons. The first one is the holiday effect as you said. There was the Chuseok holiday, too. In early October, household debt growth was also believed to have declined, but early October also had many holidays. Armed Forces Day, National Foundation Day, Hangul Day, and all had holidays. There was also an optical illusion effect due to this holiday effect. Then at the end of August, as the second phase of the stress DSR took effect in early September, loan regulations were tightened, so demand was concentrated before the end of August, with last-minute demand. There was also an optical illusion effect from that. Then, the financial authorities should self-regulate private banks to tighten household loans and tighten new lease loans. I induced them like this, "Don't even give mortgage loans to single homeowners." This is a kind of optical illusion that has dampened the growth of household loans by artificially suppressing loans despite the still demand. I'm looking at it like this. If these lending regulations are lifted again early next year, demand that had been pressed again could explode.

[Anchor]
You said that real estate is still in an unusual situation, but on the other hand, even if we cut it, there was a prediction that the Monetary Policy Committee would cut it at the end of next month, not this month, so November. What is the background of this opinion?

[Seok Byung Hoon]
The background is also on the rise in household loans and real estate prices. The Bank of Korea has two policy goals. It's price stability and financial stability. As I said earlier, price stability has been achieved because the consumer price index has risen to 1.6%. The problem is in terms of financial stability. In terms of financial stability, the increase in household debt will be a problem. However, although the increase in household debt has subsided now, as I said earlier, it has a holiday effect, so we need to wait and see whether this will continue to reduce household debt growth. That's why it was argued that the base rate would not be cut until November on the basis that it was right to cut the base rate after watching it until November. However, if the base rate is frozen by November, on the contrary, as I said earlier, the slump in domestic demand could be too large. And ways to curb household debt growth have more effective policy responses than freezing the benchmark interest rate. It's about tightening lending regulations on household debt. There is a way to further strengthen the DSR, which is the strongest loan regulation, and the debt-to-principal repayment ratio regulation. Because as of the first half of last year, only about 25% of the total amount of new loans are subject to the total debt repayment ratio regulation. There's a way to expand this further. So, I think it is more desirable to respond in this way because it is more effective in curbing household debt growth if you expand it to representative jeonse loans or policy loans that are currently subject to exceptions, or to lower the upper limit of DSR to 40% in the banking sector and 50% in the second financial sector.

[Anchor]
So, you said that you are not trying to solve all of them with just one monetary policy, but you are expected to implement such economic policies by mixing them with policies. I'm also curious about the cut. Didn't the U.S. drop 0.5 percentage points at once? What do you think the Bank of Korea will do?

[Seok Byung Hoon]
The Bank of Korea believes it will only cut 0.25 percentage points this year. Because the U.S. has raised its benchmark interest rate considerably more than ours. We made a relatively slight increase. And then the ratio of household debt to GDP is still 91.1 percent in terms of household credit, household debt, if we look at the most recent data. But the Bank of Korea's mid- to long-term goal is to lower this to 80 percent of GDP. That's why we've still talked about household debt. It is so high that it is difficult to cut the base rate sharply. So, considering those things, I think it is appropriate to cut the base rate by only 0.25 percentage points. It is highly likely that the base rate will be gradually lowered to 2.75% per year by next year.

[Anchor]
You said you don't think you'll speed up than the United States. Let me ask you one last question. I think external variables will also be a factor to consider. Isn't the situation in the Middle East causing oil prices to fluctuate? Is this an indicator that the Bank of Korea is not looking at with much interest?

[Seok Byung-hoon]
In general, the most important indicator in terms of prices when operating monetary policy is the rate of increase in the core consumer price index, excluding food and energy prices. Because it is not only an indicator of the trend of prices, but also an indicator of the effectiveness of monetary policy accurately. This is because energy prices are greatly affected by exogenous factors such as the situation in the Middle East, regardless of whether the Bank of Korea decides the base rate. So the situation in the Middle East is unstable right now, so prices may skyrocket as an energy supply factor, but this is not going to affect the Bank of Korea's decision on the benchmark interest rate.

[Anchor]
It's going to be announced soon, so I'll wait. So far, we've talked with Seok Byung-hoon, an economics professor at Ewha Womans University.