Rising Interest Rates Increases Koreans’ Cost of Living

Koreans’ Cost of Living is a Growing Problem
The cost of interest is rising on the average Korean household. As has been mentioned multiple times here at the Seoul Gyopo Guide, the cost of living continues to rise, which is creating stress to everyday Koreans. The problem is (at least) twofold. First, Koreans’ savings rate was originally quite low due to a combination of spending habits, the high cost of food/energy, and the income tax credit that Koreans receive when using credit cards. Second, interest rates are negatively correlated with real estate prices. As a result, the recent rise in interest rates has only increased the existing downward pressure on apartment prices. Added together, it is no wonder that Koreans’ stress level is continually high, and while the Korean companies are enjoying unprecedented gains in market share in many industries, the average Korean situation is actually getting worse, not better.

Maeil Business Korea Is Right
This blog is has rarely complimented the English language versions of Korean newspapers, and for good reason. Too often, these newspapers either a) do not publish newsworthy articles, or b) merely serve to promote an event or positive aspect of Korea. In this case, however, Maeil Business (Everyday Business) has correctly, with supporting facts, pointed out a real issue. To those that can read English in Korea, even the editorializing in the article is appropriate: Koreans need to be wary of the increasing costs of interest which serves as an additional, unwelcome tax.

Dear Haters, BACK OFF. Yours Truly, Bank of Korea
It is just another factor, but an important one, that points out that a rate hike by the Bank of Korea isn’t as obvious as some would believe. As it is, Korean banks are once again becoming more and more reliant on the fortunes of the largest companies, as evidenced by the large amount of merger financing that is being allocated to the Hyundai E&C acquisition by Hyundai-Kia. On one hand, the Seoul Gyopo Guide has openly questioned whether or not the increased concentration of corporate earnings power in one entity is wise. On the other, it may be the fact that Korean banks believe that it is still better than easing lending to households. Unfortunately, the banks might be right, relatively speaking.