[Start Economy] Bank of Korea's "Further cut in benchmark interest rate next year" unusual notice..."January Inhaseol." Head.

■ Host: Anchor Jeong Jin-hyung and Anchor Cho Ye-jin
■ Starring: Professor Lee Jung-hwan, Hanyang University School of Economics and Finance

* 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 economic news quickly and kindly. Start Economy, today with Lee Jung-hwan, a professor at Hanyang University's School of Economics and Finance. Please come in. Let's talk about the Bank of Korea. In the report, it was revealed that the government will make an additional cut in the benchmark interest rate next year. I think there's a background to this decision.

[Lee Jung-hwan]
Yesterday, there was a report on the direction of monetary credit policy management in 2025. You can understand that it contains basic information on how to manage actual monetary policy and household debt of credit companies next year. Let's say the dovish tone here. He said he made a lot of implications for a rate cut. So, the Bank of Korea seems to have decided on a combination of three. First of all, it is pointed out that the uncertainty is very large, and secondly, there was an opinion that the competitiveness of Korea's industry seems to continue to be difficult due to international competition. Third, I also pointed out the usual problem. Since trade could suffer damage and how uncertainties will proceed next year, why not actively implement monetary policy according to such downward pressure on the economy? Being active is an expression of the intention to lower interest rates because interest rates are not low. In the end, the Bank of Korea continues to say that prices will stabilize at around 2% next year. It believes that the target level of the so-called policy will stabilize, so if prices are stabilized, monetary policy can be relaxed to support the Korean economy, and in particular, the difficulties of small business owners and ordinary people have continued recently. The construction industry has also been negative for several years by signaling negative growth. The domestic market can increase only when the construction industry or the small business economy picks up, but the negative cycle continues as domestic demand continues to contract, and there are concerns that these negative cycles of shrinking domestic demand, shrinking employment, shrinking investment, and shrinking employment will continue.

[Anchor]
Then, when do you expect the rate cut to be?

[Lee Jung-hwan]
The months when the Monetary Policy Committee is held are held except in March, June, September, and December. Then it will be January or February, but I didn't expect it because the Monetary Policy Committee said it would cut interest rates last November, but I cut interest rates once. After all, with this report, the market can cut it in January. It aims to actively supply liquidity from the Bank of Korea, especially in the face of political uncertainty.
That means that there is so much uncertainty that you expressed your opinion that by actively supplying liquidity to stabilize the financial market, financial institutions will not have problems with lending or capital supply. There were many opinions that such stories would be taken off in January because they were told twice last year. Because I think it was unusual to get off in November, and there were many opinions that it would not get off in January. As the direction of monetary credit policy was revealed yesterday, the timing was accelerated. Of course, there are concerns about the foreign exchange market, which hit KRW 1460 today, but since financial institutions, commerce, manufacturing, and all economies are increasingly anxious about the growing uncertainty and are asking to resolve this uncertainty, they can take more active monetary policy. So, I think there are a lot of opinions that there is a possibility of lowering it in January.

[Anchor]
It seems to be a decision that puts weight on domestic demand rather than exchange rates, right?

[Lee Jung-hwan]
The U.S. is going to lower its benchmark interest rate next year, but it is predicting that it will not be as expected. During the FOMC meeting, the U.S. is slow to ease monetary policy because it changed the dot plot on the benchmark interest rate and changed from four cuts to two next year. Nevertheless, it means that we will speed up the pace of monetary easing. I can tell you that the gap in the benchmark interest rate may widen a little more than expected. In the end, the demand for the U.S. dollar is higher than expected, so there is demand for the U.S. dollar and demand for the won is weak, so there are many negative factors in terms of exchange rates. Nevertheless, I think I can tell you that the monetary easing policy has changed due to severe concerns about the domestic economy.

[Anchor]
I'll also talk about the loan. Banks have been tightening their loans a lot since the new year. However, I have warned that I will lower the threshold for household loans, but there are still views that there are many loans, so won't it affect the increase?

[Lee Jung-hwan]
It's true that the story of a lot of household loans continues to come out, and in fact, it's exceeding the highest figure in history. It's said that it's over 1900 trillion, so you can look at it as almost the same level of GDP. As household loans increase, the concerns are about the housing market. There is a negative structure in which household loans flow only to the real estate market, leading to an upward trend in the real estate market, and the bubble of real estate generates additional household loans. So, next year, rather than household loans to multi-homeowners, we will ease regulations on end-users, such as mortgage loans and lease loans for living expenses. This reason is similar to the view of the Bank of Korea, but if domestic demand is so bad that it does not go only toward housing, it reflects the opinions that they should prevent consumption from shrinking while increasing loans. In January next year, banks usually manage to increase loans in total. It manages the increase in loans, but in January of next year, it will be set up again, so there is room for new loans. As the domestic economy is in a slump, it can be understood that the government is showing its opinion to increase loans to real consumers and continue regulations on multi-homeowners by increasing credit supply centered on domestic demand and one house.

[Anchor]
In the meantime, there is news that the average loan balance per capita in Korea exceeded 95 million won for the first time, and looking at the trend, it seems to have increased for five consecutive quarters.

[Lee Jung-hwan]
Since the housing market is good at the beginning of this year, household loans have increased. The graph is coming out, and the peculiar thing is that it continues to be unusual that household loans have not decreased even though interest rates have risen a lot since 2022. As this trend continues to increase, the Bank of Korea was also concerned, so there were aspects of not actively lowering interest rates in the second and third quarters, so if you look at a lot of economic news, you'll see that. As such, there were problems in the housing market in the first and second quarters of this year, and accordingly, the average loan balance until the third quarter. So, it takes time to buy a house and reflect the balance of the loan. I think you can understand that the balance of loans continues to increase with these things. There is a constant debate about this not being bent. There are discussions about whether interest rates should have been raised further or whether this is desirable, but since the trend continues to increase, the Bank of Korea is also burdened, and if household debt increases too rapidly next year, it is a situation in which the rate cut will inevitably slow down in a way, unlike the opinions expressed in the direction of monetary policy in 225 and 2025. In the end, we judge that the foreign exchange market and household loans will act as the most important factor in determining the Bank of Korea's monetary policy next year.

[Anchor]
One of the things I mentioned earlier as a vicious cycle was about real estate, but the construction industry is very bad. I think the supply will be disrupted due to the continued decrease in sales volume, but I'm also curious about the reason.

[Lee Jung-hwan]
When I checked how much the sales volume will be sold next year, there are talks that it will be less than 150,000 won, so there are many times when there is a lot. It went up to 300,000. The graph is coming out right now, and it's a lot reduced, but this is it. The story that it is only 220,000 in 2024 and 140,000 in 2025 is that the supply volume will decrease significantly in the next three years or so. So, it takes about three years to sell and build, so you can see that there is anxiety that the apartment sales volume will decrease a lot after three years. There are two main reasons. After all, there is one economy that is difficult to raise capital because interest rates are still higher than neutral interest rates. Due to high interest rates, existing real estate PFs are not well organized, and there is clearly insufficient capacity to provide new capital. The second problem is that construction costs have risen more than 60% compared to the past, compared to COVID-19, and the rate of increase is getting faster than before. When we were doing construction, we used to split the construction cost for three years, but now there are many opinions that it will not go well unless the overall construction cost is guaranteed and the increase in construction costs is reflected. As the construction costs themselves rise a lot, the pre-sale market is bound to freeze. When interest rates are low and construction costs are low, the sale is smooth because the sale profit is good, but now interest rates are high and construction costs have risen a lot, and the sale market may suffer for a while because I don't think it will go down easily in the future. And as the real estate PF has not yet been organized, there are a lot of negative effects on the pre-sale market.

[Anchor]
If the apartment supply cliff continues like this, it will inevitably affect the jeonse market, so what will it do?

[Lee Jung-hwan]
If there are many new apartments, the lease tends to go there. In the past, Helio City created 10,000 households, so large-scale apartment complexes can have a great effect on stabilizing lease prices. Then, if the sale is reduced, I can tell you that there is a possibility that both of them will go up because the number of new lease on a deposit basis will decrease under such a mechanism and there are no new people to buy. If people are short of supply compared to demand, prices go up, and when prices go up, they can't buy a house and move to a lease. Then the demand for lease on a deposit basis increases, so the lease on a deposit basis price goes up. It has no choice but to have a negative impact because these can be seen as situations where housing prices and lease prices can rise. So this year, house prices have risen by 2%, but jeonse prices have more than doubled. Perhaps these phenomena occur because supply has decreased since 2021, 22, and then. In particular, I think that sales will actually decrease in 25 and 26, so I think it will decrease a lot after 26, so I can tell you that it is true that there is a concern.

[Anchor]
I think the government will also have a lot of concerns about supply. People who invest in coins around you can often experience it, but the statistics came out?

[Lee Jung-hwan]
The story that the Bank of Korea legislated on virtual assets in July this year and was legislated can be considered as a story that can produce statistics. How many accounts can be made for the five major exchanges in Korea. You can think of the number of investors as the number of accounts and understand that there are duplicates. Looking at the number of investments, it increased a lot between October and November. It's more than 500,000 people, and the amount has doubled from October to November. As it increases, especially with the Trump administration, it can be understood that investor demand for virtual assets is increasing a lot. So, it shows a relatively stable trend in July, August, September, and October, but it has increased a lot in October and November.

[Anchor]
After Trump's election, the number of domestic virtual asset investors increased significantly in November. What do you think of Bitcoin's future prospects?

[Lee Jung-hwan]
The price of bitcoin has been dropping again recently. I think everyone has different opinions, but Bitcoin is an asset, and foreign countries also understand it as an investment asset, but this is the code. They say it's a coin, but it's not a coin or anything like that, it's a code made in 2008 and 2009. In terms of computers, it is true that there are many doubts because they are trading with old computers. In addition, institutional investors say that the number of institutional investors has increased a lot recently, but institutional investors like the trend market to go up, but they also like the volatile market. I think because I like selling at high points and buying at low points, and I like these volatile markets, there's a lot of possibility that prices will fluctuate depending on the trading of institutional investors, I think I can tell you this. In the end, since the asset Bitcoin is an old technology, discussions about fundamentals... use 2008 computers in 2024? There are definitely parts that don't fit logically. As there are concerns about fundamentals, institutional investors may have some trend rise, but rather than that, they are more likely to pursue volatility and investment policies that earn profits from low to high buying points, and there are no fundamentals. If so, there is a possibility of losing money if an individual buys incorrectly. It is necessary to be careful with the flow because the possibility of prices moving according to the flow of institutional investors is gradually increasing. Of course, it can go up in a trend, but it creates volatility in the meantime, which means that institutional investors have to make profits every year and buy and sell a lot. Volatility is bound to increase because there will be a lot of strategies to buy from low points and sell from high points. So, it doesn't matter if the fundamentals are good assets, but as institutional investors can take advantage of volatility, expectations are clearly formed that virtual asset prices can rise as the Trump administration has implemented pro-virtual asset policies, but there are also growing expectations that the process will not go up as smoothly as before. Because of the nature of the lack of fundamentals and the nature of institutional investors to make profits every year, there are situations in which individual investors are bound to be cautious. I personally think so.

[Anchor]
Coins also have a theme. You have to be careful. Let's take a look at the last topic, and the news is that department store fashion strategies are becoming luxury goods, what is this?

[Lee Jung-hwan]
It can be said that luxury goods are also bought a lot of overseas luxury goods. We are pursuing such a strategy of increasing the number of luxury stores and entering new overseas stores in department stores. You can think of it as having a plan to gradually go to department stores for good brands in the past in Korea. From the department store's point of view, the commission for luxury goods profits is small. Therefore, it is small compared to sales, but the recent story is that these luxury stores must cluster in order to lead people to department stores. Therefore, it is actively trying to attract a large number of luxury goods and popular luxury stores because it has a structure that can increase the profits of other stores by having all luxury stores. In fact, there are thoughts that domestic brands are following fashion trends compared to luxury brands. Therefore, since the attraction effect of people is a little weak, it can be understood that stores are gradually being exported and arranged mainly for overseas luxury goods.

[Anchor]
Not only are we entering various brands, but the number of stores itself seems to be increasing. Luxury galleries are usually gathered on the first and second floors, but recently, they have expanded to other floors and have stores of the same brand.

[Lee Jung-hwan]
The most important thing to note is that men are increasingly in demand for luxury goods, and it is shown that women's stores and men's stores are being divided into young men's groups, and then the floors are divided. And then shoes were gathered in the past, but now the shoes are sold out.
Because there is a lot of demand and it is easy to arrange by floor, shoes are for each floor, and bags are for each floor. There are opinions that men's division into men and placing them in department stores is profitable, and as consumption continues to be polarized, the characteristics of polarized consumption are subdivided. And if the store is organized alone than when it is concentrated in one store, there are clearly aspects that are more advantageous for store displays and new products, so the arrangement of more subdivided polarization consumption is different to suit these things, and men and women are gradually segmented into bags, clothing, and shoes to target them. And one of the recent department store trends is that the composition of the store is changing very quickly. Fashion trends are also important in luxury stores every year, so if you try to change them quickly, you can understand that these are subdivided stores, which can be men and women, and they can be divided by item. Shoes are located in shoe stores, and bags are taken with this structure so that they can be placed near the bag.

[Anchor]
We even pointed out the polarization of consumption in the economic recession. So far, I have been with Hanyang University Professor Lee Jung-hwan.