Koo Yoon-cheol, Deputy Prime Minister and Minister of Economy and Finance, has announced plans to address the funding burdens faced by businesses and households due to rising long-term interest rates. He emphasized the need for urgent support measures for small businesses and vulnerable borrowers.
On August 21, Koo convened a market situation review meeting at the Bank Hall in Seoul, where he discussed trends in the financial and foreign exchange markets. The meeting included Lee Ok-won, Chairman of the Financial Services Commission, Lee Chan-jin, Chairman of the Financial Supervisory Service, and Park Jong-woo, Deputy Governor of the Bank of Korea.
Participants noted that uncertainty in the Middle East, coupled with increased government bond issuance and expanded corporate bond issuance by global AI companies, has led to rising interest rates, particularly for long-term bonds.
The yield on U.S. 30-year Treasury bonds rose from 4.61% at the end of February to 5.19% on August 19. During the same period, Japan's yield increased from 3.34% to 4.09%, while the UK's rose from 5.03% to 5.79%.
Koo stated, "The government will continuously monitor the issuance and trading conditions in the government bond market to minimize the impact on the real economy, including corporate funding costs and household interest burdens."
He added, "We will quickly announce a 'support plan for vulnerable borrowers' to alleviate the debt burden on small businesses and financially vulnerable individuals. We will also enhance debt restructuring to support struggling small businesses and individuals and expand financial assistance for small and medium-sized enterprises and vulnerable borrowers."
The won-dollar exchange rate fell from the 1550 won range at the beginning of last month to 1390 won on August 19, marking a return to the 1300 won range for the first time in 11 months. Analysts attribute this decline to record-high current account surpluses and easing foreign stock rebalancing.
However, given the geopolitical conflicts in the Middle East and the monetary policies of major countries, Koo noted that both upward and downward factors affecting the exchange rate remain, and the government will maintain a readiness to respond to market volatility.
The decrease in net external financial assets in the second quarter is believed to be due to improved corporate performance and rising stock prices, which increased the value of domestic stocks held by foreigners. Net external bonds rose by $23 billion to $367.8 billion, and the current account recorded a historic surplus of $191 billion in the first half of the year, indicating good external soundness.
Household credit has surpassed 2000 trillion won, but the ratio of household debt to GDP has decreased from 89.1% in the first quarter of last year to 85.3% in the first quarter of this year. Authorities plan to manage the growth of household debt, which remains high compared to major countries, while reducing funding difficulties for genuine borrowers.
The trading volume of single-stock leveraged products dropped from 12.4 trillion won on the day before the implementation of supplementary measures on July 30 to 1.1 trillion won on August 20. Authorities will activate an integrated management system covering the financial, foreign exchange, government bond, and real estate markets to assess sector-specific risk factors and take market stabilization measures if necessary.
* This article has been translated by AI.
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