Rising Interest Rates & High Debt Levels: A Bad Combination
The Seoul Gyopo Guide has been pointing out two areas of concern for the Korean economy: lower real estate prices and heavy indebtedness occurring as a result of inflation the high cost of living. The Dong-A Ilbo pointed out that indebtedness in Korea has soared.
Bank of Korea’s Difficult Task Continues
The Bank of Korea (BOK) has had an unenviable task. Inflation has increased, in part because import prices are high. Why is that? The Korean Won is weak. However, that same, weak Korean Won encourages exports of Korean-made products. Usually, central banks use the level of interest rates to dampen inflation. The BOK has been widely expected to continue to increase interest rates. However, at the same time, the BOK has been believed to have been intervening in the foreign exchange markets in order to weaken the Won. In short, the Bank of Korea is in between a rock and a hard place. Recent actions suggest that the BOK is trying to have it both ways.