[Money Move Intensifies] "Additional Rate Hikes Inevitable... Money Will Flow into Banks Until Next Year"

Full-Scale US Interest Rate Hikes Expected Next Year
Banks Emerge as Safe Investment Destinations
"Money Move May Prolong"

[Asia Economy Reporters Kiho Sung and Sunmi Park] The appearance of a ‘money move’ in the domestic financial market is due to the Bank of Korea’s additional base rate hike, which significantly raised deposit interest rates, coupled with the domestic stock market’s poor performance, causing wandering large sums of money to flock to banks. Additionally, the expectation that the U.S. Federal Reserve will accelerate tapering (asset purchase reduction) in response to inflation, along with the government’s tightening of household debt and rising loan interest rates blocking the path of ‘debt investment (debt-financed investment),’ are also interpreted as factors. The flow of money that was heading toward ‘investment’ has shifted direction toward ‘savings.’

According to the financial sector on the 29th, banks rapidly raised deposit and savings interest rates after the Bank of Korea decided to raise the base rate from 0.75% per annum by 0.25 percentage points to 1%. Typically, an increase in deposit interest rates is a cost increase for banks, so considering that there was usually about a one-week lag after a base rate hike, this is unusual. Recently, as loan interest rates have sharply risen due to the government’s stringent household loan volume regulations, there has been strong public criticism accusing banks of profiteering from the interest rate spread, and financial authorities have also mentioned the need to rationalize deposit interest rates, which is interpreted as a conscious measure.

Concerns about domestic inflation and global economic slowdown have also encouraged the movement of funds. With the possibility of the U.S. accelerating tapering due to inflation and the normalization of monetary policies being pursued by various countries, instability in the global financial market is increasing. If anxiety about the economy prolongs, market interest rates rise and liquidity decreases, which can cause asset prices such as stocks, bonds, and real estate to fall. The Bank of Korea’s announcement of a full-scale base rate hike has also made banks an attractive investment destination, which is interpreted as another cause.

Experts diagnose that the ‘money move’ toward banks is an inevitable phenomenon during a period of interest rate hikes. Professor Tae-yoon Sung of Yonsei University’s Department of Economics said, “Since prices are rising across the board, interest rate hikes are inevitable to withdraw liquidity,” adding, “Considering the overall current price trends, the money move will continue to a considerable extent.”

Professor Dae-jong Kim of Sejong University’s Business Administration Department explained, “Since the U.S. plans to raise interest rates in earnest from next year, South Korea has no choice but to raise rates as well,” and “Because the current South Korean stock and real estate markets are unstable, demand for safe places is high.”

There is also a view that the ‘money move’ atmosphere could continue for a long period until the year after next. Professor Jung-geun Oh of Konkuk University’s Department of Economics predicted, “If the U.S. accelerates tapering, large sums of money invested by foreigners in South Korea will flow to the U.S.,” adding, “In this case, our stock market could become unstable, so more money could flow into banks.” He further added, “Since the U.S. interest rate hikes could continue until the year after next, our money move could also persist until then.”

Professor Kim also predicted, “Because the U.S. inflation rate is at an all-time high, interest rate hikes will begin in earnest by June next year at the latest,” and “South Korea will have no choice but to raise interest rates, so the money move will continue for more than a year.”

This content was produced with the assistance of AI translation services.