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2017-11-21 16:45
A prolonged period of low interest rate is finally coming to a close.

Next Friday, the Bank of Korea (BOK) will hold this year’s final meeting of the Monetary Policy Board, its rate-setting body. Many financial experts predict the BOK will then raise its benchmark interest rate from the current 1.25 percent.

If the Korean central bank freezes its policy rate once again and its U.S. counterpart increases the federal funds' rate next month, there will be a reversal of the two countries’ base rates. And that could trigger the outflow of hot money from Korea.

Moreover, some U.S. investment banks forecast the Fed will raise the key rate not just once but up to four times. The jobless rate in America is expected to fall from the present 4.1 percent to 3.7 percent next year and to 3.5 percent in 2019 while its interest rate will likely remain stable. The U.S. interest rate hike is not a matter of whether but of when and how.

Most worrisome in this regard is whether heavily indebted Korean families can weather higher interest rates.

Out of the 1,313 trillion won ($1.197 billion) in household debt excluding retail credit services in the second quarter, 683 trillion won, or 52 percent, was owed to nonbanking financial firms, such as savings banks, credit unions, and insurance companies. It is the highest level since the BOK began to compile related statistics 15 years ago. The government has reined in banks’ mortgages to bring household debt under control but ended up driving cash-starved borrowers to turn to nonbanking lenders who demand higher interest.

There is not much time left. Financial policymakers should not just focus on curbing property speculators but on preventing numerous working families from going bankrupt under a mountain of debt. They ought to hurry to work out a policy package to avert a looming debt crisis by, for example, restructuring the low-income people’s debt to loans with softer terms and helping to increase their income in the longer run.

The financial crisis of 20 years ago was due to corporate debt. The government must go all out to prevent another crisis _ caused by household debt this time around.

 

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