Bank of Korea cuts interest rate for the first time in 38 months...What is the impact of prices and real estate?

■ Hosted by: Anchor Kim Youngsoo Kim and Anchor Cho Soo-hyun
■ Starring: Lee In-cheol, Director of Economic Research Institute,

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

[Anchor]
Let me help you with your recent economic situation. First, the Bank of Korea cut interest rates for the first time in three years and two months. It was judged that inflation and household debt were stable for now. As the possibility of a rate cut continues to weigh, there are also concerns that it could stimulate the real estate market. We will analyze the economic news, including the news of the interest rate cut, with the head of the Economic Research Institute. Welcome. First, let's find out about the interest rate cut. Let's meet on the explanation screen of Bank of Korea Governor Lee Chang-yong. Please explain it a little easier.

[Lee In-cheol]
Do you remember the famous lines from Squid Game? You'll all die if you do this. If you wait for the real estate lights to turn off now, the slump in domestic demand is too serious. That's why we're going to quickly change the stance to boost domestic demand because prices are set now. The problem is that we have been very fast in tightening prices among major countries. It was the fastest, but so-called tightening and monetary policy easing were the slowest among major countries. The U.S. did a big cut. Some of the ECB have cut interest rates twice, but the timing is slow, so it doesn't work very well. The reason most people waited for a rate cut was that I thought that I would get a household loan and the loan interest rate would be lowered, but the loan interest rate will rise from next week.

[Anchor]
Will the increased interest rate apply to those who have already received it?

[Lee In-cheol]
In the case of variable interest rates, it is a six-month unit, so there is a time difference, and new borrowers are applied immediately. In the case of new borrowers, SC First Bank and Kookmin Bank are next Monday, the 14th. Starting Monday, the government will raise interest rates from 0.16 to a maximum of 0.25 percentage points by lowering the preferential rate and increasing the additional rate. So, what's this? I cut interest rates, but the stock market fell and my loan interest rate went up. This is why practical theory comes out.

[Anchor]
Then, housing prices have been on the rise recently. Is the upward trend continuing?

[Lee In-cheol]
First of all, the market's interest rate cut is reflected to some extent, so what is more important than the current interest rate? It's a loan regulation. So, looking at it now, the impact of this rate cut on household loans and real estate markets is bound to be quite limited, but first of all, August was the highest in the case of household debt. It increased by almost 10 trillion won. But when I looked at it in September, it fell to 5.2 trillion won, about half. However, we have to wait and see if this is a one-off event due to the Chuseok holiday, but it is still a powder keg.

And even in the case of housing prices, housing prices in Seoul have risen for 29 consecutive weeks. However, the rate of increase has been slowing for four consecutive weeks. So, the market has already reflected interest rate cuts to some extent, and loan regulations and financial supervisory authorities are now regulating the total amount of loans. As a result, the volume of transactions has decreased and the number of sales has gradually increased, leading to a wait-and-see pattern and a breathtaking trend.

[Anchor]
It's been three years and two months since Korea decided to cut interest rates. Is it okay to see it as a sign that it is now shifting from austerity to easing to boosting the economy?

[Lee In-cheol]
is correct. The major European countries, the U.S., which I have already started to cut interest rates, also switched to a big cut last month. At the same time, the U.S. and Pivot cut the benchmark interest rate sharply, but we now have five out of six members of the Monetary Policy Committee cut interest rates by 0.25 percentage points to 3.25. One person has a minority opinion. What are you talking about? There is also an opinion that interest rates should be frozen, but as you said, the base rate of 3.25 is the first tightening shift in three years and two months since August 2021, and based on the timing of the rate cut, it is the first time in four years and five months since May 2020. In short, this rate cut is based on the judgment that economic stimulus comes first despite concerns about rising housing prices and household loans.

[Anchor]
The economy needs to be stimulated and real estate overheating needs to be prevented. However, the U.S. has lowered the interest rate, so the base rate is 5%. We lowered the interest rate to 3.25%. If you look at the difference, it's still 1.75. What should we do?

[Lee In-cheol]
Actually, we talked about that. Why did the U.S. cut interest rates by 0.5% at the same time as the pivot, and China also cut rates by 0.5%. So the question was, why are we 0.25? Then, if the baebbb bird wants to follow the stork, its crotch is torn. What do you mean? The U.S. raised interest rates by as much as 5 percentage points to curb prices approaching 10%. We raised interest rates by 3% in the same period. So the cut is bound to be different. The other thing is this potential detonator, as I mentioned earlier, the household debt problem, and real estate prices are still a powder keg right now. So, what report did the Bank of Korea release earlier? If the loan interest rate is lowered by 0.25 percentage points, the house price in Seoul will jump 0.83 percent in a year and the house price will jump 0.43 percent nationwide. This can be done preemptively, so this is impossible only with monetary policy, so the financial policy, the Ministry of Economy and Finance, and the Ministry of Land, Infrastructure and Transport should step up and cooperate with household debt and housing prices.

[Anchor]
The U.S. is also hinting at an additional rate cut, so do you think we will make another rate cut within this year?

[Lee In-cheol]
It's very unlikely. Why? According to the Ford guidance, the Monetary Policy Committee discussed the interest rate level in the next three months, and five should remain at 3.25% of the current level until three months later. Only one person is going to cut interest rates. If you say three months, it's October. There will be no rate cuts until November, December, and January. So even if the U.S. cuts interest rates twice, maybe in November or December, the Bank of Korea is unlikely to cut rates. Then what did Governor Lee Chang-yong say? There is room for a rate cut. Nevertheless, the additional interest rate cut will be decided while looking at the pace of financial stability. What's the most important thing right now. How much will interest rates be lowered then? Will it be lowered to zero interest rates, a level that can be shoddy like in the past? I'm telling you to wake up. The U.S. has slashed interest rates on a dot plot, four times next year, two times in 2026, up to 2.9% a year in 2026, and now it's 5%. I think we're going to go about 3%.

[Anchor]
It's similar to ours.

[Lee In-cheol]
is correct. How far can our country go down? It's around 2.5% at the end of 2026. So it's 3.25 right now, but if it goes down to 2.5 for two years, you can cut interest rates three times. You have to take this down for two years. Then it would be nice to use it quickly. Because our economy is serious. You received the economic report for the second quarter of last year. It was minus. GDP -0.2%. It's negative growth compared to the previous quarter, but we'll have GDP in the third quarter of this month. If Q3 GDP is negative, is officially the economy negative for 2 consecutive quarters? This is going into a recession. So, in order to prevent this, you have to use the three interest rate cuts at once, but unfortunately, domestic demand is not good these days, but exports continue to be good. As a result, there is a high probability of negative growth in the third quarter, and a plus will come out, so I will probably use three interest rate cuts very carefully.

[Anchor]
Now, the government wants to boost the economy and prevent the real estate market from overheating, but among the policies to tighten loans, there has been a stress DSR policy. It's been stage two. The third stage of implementation was next year, but there is a saying that it will be accelerated. What do you mean?

[Lee In-cheol]
It is also quite unusual for the governor of the Bank of Korea to visit the Ministry of Strategy and Finance. The Bank of Korea talked about policy cooperation, probably the first time since its foundation. It means that interest rate cuts alone cannot solve the real estate market and household debt problem, so let's cooperate with policies. So what are the additional regulations that are being discussed? As you mentioned, we also have policy financial products. Now 70% of all loans are policy financial products and end-users. However, if interest rates are lowered, there is a demand for it.

[Anchor]
Are you talking about a support loan recently?

[Lee In-cheol]
Special loans for newborns were mainly made by end-users. So, will this also be included in the regulation? One possibility is open, and as you said, in terms of financial regulation, in fact, DSR stage 2 and two months late are also excessive. On top of that, let's move this forward before the implementation of the second half of next year. And why don't we lower the mortgage recognition rate and the house price recognition rate by calling it LTV? DSR is currently doing 40 percent in the financial sector and 50 percent in the non-financial sector. How about lowering this? It's likely to be the first one to come out. There's another big strong card. When the Ministry of Land, Infrastructure and Transport designates an overheated speculation zone, almost everyone stops.

[Anchor]
Isn't it because you think the real estate market will soar further if you don't implement this policy?

[Lee In-cheol]
So the government is a concern. If the real estate market dies, the slump in domestic demand becomes worse. How sluggish is domestic demand right now? KDI released a report a day before the Monetary Policy Committee. Due to the prolonged high interest rate, the sluggish domestic demand has been for 11 consecutive months. So, even if you don't kill the real estate market here, you're in a very dilemma where you can't save too much and you can't put household debt into debt.

[Anchor]
The expression "progress and retreat" is correct.

[Lee In-cheol]
is correct. Therefore, if it is designated as an overheated speculation zone, the overheated speculation zones are now Gangnam 3 districts and Yongsan. The exercise of property rights is restricted here. You can't borrow more than 1 billion won. This is a new apartment building, and the expectation of reconstruction is fluttering here. As a result, it blocks it further so that it doesn't spread outside. all over Seoul as an overheated speculation zone If you do this, you'll be banned from reselling the right to sell. It's completely banned. And housing loans are less than a certain part. There will be restrictions on the actual residence obligation. As a result, if this spreads across the country, the entire real estate market will be turned off, and if this happens, the government will be very concerned because the volume of occupancy in Seoul will gradually decrease in two to three years later, next year, and the year after next.

[Anchor]
What do you expect?

[Lee In-cheol]
I think I'm going to implement financial regulations first. The issue of implementing financial regulations first and the last card expanding and designating speculative overheated zones is also here.

[Anchor]
We can't let the real estate market slow down too much again.

[Lee In-cheol]
is correct. But what's the uncomfortable truth? When the U.S. considered three rate cuts and two rate cuts, the domestic stock market and real estate rose. So, I'm slowing down for a while now, but now it's the end of the year anyway, so the bank can't afford to borrow. As a result, even though the base rate was lowered as before, the preferential rate was lowered and the additional rate was raised. The biggest beneficiary of this rate cut is the bank. I already made 30 trillion won in interest in the first half of the year. I'm managing my facial expression, and the financial authorities are now humming and coughing, but this is keeping up with the bank's stance, so maybe next year, all total regulations will be set up at zero. Banks will be quite aggressive in marketing because they have new loan capacity. If that happens, household debt and real estate problems could become a little more serious next year.

[Anchor]
I see. And another question is, don't interest rates usually work as a good thing for the stock market? Both KOSPI and KOSDAQ closed lower last Friday. How do you see the reason?

[Lee In-cheol]
First of all, the lead is absent. It's serious. Samsung Electronics accounts for more than 20% of preferred stocks, but it is now a new 52-week low. In the past month or so, only Samsung Electronics has been selling nearly 10 trillion won by foreigners. There is a side where interest rate cuts are reflected. And last weekend alone, foreigners were selling almost KRW 600 billion in the securities market. On top of that, the corporate value-up index was released, but when I opened the lid, there was not much to eat. Disappointment. And here's the issue of the moratorium on financial investment, and here's the uncertainty that the stock market hates the most right now. As a result, Korea's stock market has a lower return than Russia, which is at war.

[Anchor]
The aforementioned large stock, Samsung Electronics, and preferred stocks account for 20% of the total stock market in Korea. What do you expect? Can Samsung Electronics' stock price fall further in the future?

[Lee In-cheol]
It reads semiconductor winter and writes Samsung Electronics' own winter. I just saw the performance announcement, Nvidia, Earnings Surprise. Micron earnings surprise, TSMC earnings surprise. That's why Samsung Electronics is not even second in Korea from the world's first place. You're in second place in Korea, too.

[Anchor]
Hynix's stock price is going up, right?

[Lee In-cheol]
Hynix is going up. Leaving aside the semiconductor sector, this time, Samsung Electronics is trailing SK Hynix in semiconductor operating profit for the first time since its foundation. So, it's not just about numbers, but what comes to mind when you think of Samsung Electronics? Super-gap technology, innovation, and quality come to mind, but this is gone.

[Anchor]
Some point out that the semiconductor market is recovering recently, but only Samsung Electronics is facing winter now. What do you think of the possibility of a stock rebound going forward?

[Lee In-cheol]
The most important thing for me is that foreigners are likely to sell more. Because I can't see the future well. Because the stock market feeds on the future. It's about how good the future performance will be and how good the latest products will be to increase market share, but Samsung has taken the crisis as an opportunity by taking extreme remedies every time a crisis occurs. What happened in 1995? I got a wireless call, but the defect rate soared to double digits, so I collected all my cell phones and burned them in front of the employees. In 2007, the battery of the Galaxy Note 7 was defective.

It changed the crisis by putting super-strong water to collect all 2.5 million units, but recently, there is no DNA to respond to this crisis of Samsung Electronics. So of course, the 5th generation artificial intelligence chip that is being tested on Nvidia is important, but this one has already been preempted by SK Hynix and Micron and taken away. Then, how much of the 6th generation artificial intelligence chip, which is scheduled to be released next year, will occupy this market is the most important thing, in the short term. Second, despite the foreigners selling it now, they sold 10 trillion won, and Samsung Electronics has a 53% stake in its common stock.

Half the foreigners have it. However, if I don't see the future, I could break this stake by 50%. Then you don't have to worry about 50,000 electronic devices, you have to worry about 40,000 electronic devices. So, what will Samsung break through with? I have nearly 100 trillion won in cash right now. I'm not using this. Closing the technology gap is now suffering from heat generation and power problems. What's the best way to solve this? You can do M&A for a company with technology. But there's never been an M&A in 2017. So, the stock outlook is not very good until large-scale R&D investments or M&As show any future growth potential.

[Anchor]
I see. But last weekend, the U.S. stock market was at an all-time high. The U.S. S&P and Dow Jones all hit record highs.

[Lee In-cheol]
What is really unknown about the United States is that it has been going unadjusted for more than 10 years annually. As a result, all domestic individual investors are going to buy U.S. stocks. The U.S. stock market is at an all-time high over 40 times this year. It's not just the United States. The UK, Germany, France, India, Japan, and Taiwan also wrote new stock market history this year, but earlier, I am not as advanced as the Korean stock market. Morgan Stanley We are an emerging country. Emerging countries are also going to the tail, not the head of a snake. We're losing ground in emerging markets. Where are you being pushed? Emerging stock markets are also losing ground to China, India and Taiwan.

It's at the level of 4th place. So the FTSE index is an advanced country. But MSCI has a bigger basket. Our country is an index of emerging economies. But now, we are not going to advanced countries. But if you look at it now, all industries in the United States are rapidly shifting their paradigm to AI, but we are lagging behind. We are still Samsung Electronics. It's still a Hyundai car. Semiconductors, automobiles, shipbuilding. It's been like this for about 30 years, so it's not the first place. That's why I have to turn this around. It's about investing in Samsung Electronics and Hyundai Motor and making profits. Buy Apple and buy Tesla. Why do you buy this? You have to change your perception. It's a fundamental problem. It is not a matter of value-up, but various measures should be taken to resolve corporate transparency, future growth, and Korea discounts.

[Anchor]
I'll also point to the news of oil prices. International oil prices are being affected as the unstable situation in the Middle East continues. It's been going strong recently, right?

[Lee In-cheol]
That's right. International oil prices have lowered prices to the 1% range. But now, international oil prices have risen for five consecutive days due to the conflict between Iran and Israel. It went up more than 12% and then what are you talking about? Don't you think we're going to go to a truce? Don't you think they're gonna attack the oil facilities? It is known that President Biden is also being held back because the price of the United States is high, but if international oil prices rise, it will affect the election. Of course, after the hurricane made landfall in the U.S. mainland, it was repeated, but when we look at the current prices, the West Texas Intermediate is now $79 for $69 a barrel. What we also import is tofu production. $77. North Sea Brent is approaching 80 dollars.

So, if it really attacked Iran's oil facilities because it soared more than $4 to $6 per barrel from before the crisis, international oil prices could fluctuate more than 20% per barrel at once in the case of Goldman Sachs. That means it's only a matter of time before you get 100 dollars. If this happens, the problem is a little serious. We're importing most of the crude oil right now. Then, if international oil prices rise, we will have more inflationary pressure. The trade balance will deteriorate. Businesses, household burdens increase. So, the government was actually planning to end the oil tax cut at the end of this month. However, if international oil prices are running like this, gasoline is now cutting taxes by 20% per liter, and this is likely to be extended again now.

[Anchor]
International oil prices are also unstable right now. There is also a low possibility that the government will cut additional interest rates in the future. I don't think there will be any measures or policies left that the government can implement. What is there?

[Lee In-cheol]
Perhaps the government is trying to use fiscal policy, but it has already spent too much fiscal policy in the first half of the year. There are not many cards available this year. So, maybe next year, we tried to reduce the fiscal deficit by saving money through tightening finances, but rather, the government will be worried because of the lack of tax revenues for two consecutive years.

[Anchor]
Thank you. I'm worried that the lives of our common people will get better only when our economy gets better. So far, Lee In-cheol, the reference has been analyzed with the head of the Economic Research Institute.