BOK Governor Shin to Face First National Assembly Briefing With People Power Party on July 29

First Bank of Korea briefing with People Power Party lawmakers set for July 29

Questions to focus on household and self-employed debt burdens after rate hike

Bank of Korea Governor Shin Hyun-song will deliver a policy briefing to the National Assembly on July 29. It will be the first such session attended by lawmakers from the People Power Party, with questions set to focus on the burden higher interest rates are placing on households and the self-employed, as well as the path of further monetary tightening.

According to the financial industry and political circles on July 28, the National Assembly’s Finance and Economy Planning Committee will hold a plenary meeting on the morning of July 29 to receive briefings from the Bank of Korea, the Planning and Budget Office and the Ministry of Finance and Economy. Shin will attend to explain recent monetary policy, economic conditions and financial-market issues.

It will be the first briefing attended by People Power Party lawmakers. A previous session held on July 6 proceeded under the Democratic Party after the People Power Party boycotted it amid a dispute over committee assignments. The deadlock stemmed from the Democratic Party’s rejection of the People Power Party’s demand last month to take the chair of the Legislation and Judiciary Committee. The two sides agreed to reconvene on July 29 to review BOK issues.

Lawmakers are poised to focus on the fallout from the recent benchmark-rate increase. The BOK’s Monetary Policy Board raised the base rate by 25 basis points to 2.75% from 2.50% on July 16.

Higher rates are adding to the strain on the self-employed and vulnerable borrowers. The BOK estimates that a 25-basis-point increase in lending rates would raise the annual interest burden on self-employed borrowers by about 1.8 trillion won. Average costs per borrower would rise by 560,000 won. For self-employed borrowers with multiple loans, the central bank estimates annual interest costs would increase by 1.1 trillion won, while the average burden per borrower would rise by 650,000 won.

South Korea’s economy is forecast to grow more than 3% this year on a semiconductor boom, but concerns are rising that the gains are not spreading broadly. Polarization is also becoming more pronounced. The average delinquency rate on household loans at the country’s five largest banks rose to 0.33% at the end of the second quarter from 0.32% at the end of the first quarter, the highest level since the first quarter of 2016. The delinquency rate on small-business loans also climbed to 0.58% at the end of the second quarter from 0.49% at the end of last year, extending its upward trend. Manufacturing employment is declining.

At a press briefing on July 16, Shin said vulnerable borrowers are always on the central bank’s radar and that close policy coordination with the government and financial authorities is critical. For vulnerable groups that cannot realistically repay debt, measures such as debt restructuring may at times be needed to ease hardship, though such steps should be carried out at an appropriate level because of moral-hazard concerns. He also said fiscal or financial measures that can be targeted more selectively would be more suitable than monetary policy, and stressed that he would stay in close communication with the government and regulators.

Lawmakers are also expected to ask about the timing of any additional rate increase. At the July 16 briefing, Shin said he would closely watch second-quarter gross domestic product and gross domestic income data, as well as July core inflation and consumer living-cost inflation.

Measures to stabilize the foreign-exchange market are also set to draw attention. The won has fallen by nearly 100 won against the dollar but is still trading above 1,450 won per dollar. Shin is expected to reiterate his plan to expand the international use of the won through the recently introduced 24-hour foreign-exchange market and an offshore won settlement system due to be launched early next year, with the goal of structurally reducing exchange-rate volatility.

Shim Sung-mi, Korea Economic Daily reporter smshim@hankyung.com