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Updated January 1st, 2024 at 19:47 IST

South Korea's tightening policies spark concerns

Rhee acknowledged the intricate interplay of external and domestic factors in shaping the optimal interest rate trajectory.

Business Desk
South Korea
South Korea | Image:Unsplash
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Bank of Korea Governor Rhee Chang-yong sounded the alarm on mounting apprehensions within the market, flagging a financially distressed builder as a "warning sign" amid prolonged monetary tightening.


In his New Year message, Rhee emphasised the imperative of managing inflation while navigating the culmination of South Korea's arduous battle to rein in consumer prices.

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Cautioned against complacency


Highlighting the spectre of compromised integrity in commercial real estate loans across major economies and the plight of a mid-sized domestic developer contending with a burdensome debt load, Rhee cautioned against complacency. He stressed the necessity of preemptive measures to avert potential financial instability, underscoring the vulnerability of the economy's weak links to burgeoning credit risks.

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Following discussions with Finance Minister Choi Sang-mok and financial regulators, Rhee pledged liquidity support in response to Taeyoung Engineering & Construction's announcement to restructure its staggering 4.58 trillion won ($3.6 billion) debt, which unsettled markets.


Projection of gradual moderation


While affirming the central bank's steadfast 2 per cent inflation target, Rhee acknowledged the intricate interplay of external and domestic factors in shaping the optimal interest rate trajectory. South Korea's annual consumer inflation eased to 3.2 per cent in December, aligning with the BOK's projection of a gradual moderation towards the 2 per cent mark by late 2024.


Echoing Rhee's sentiments, President Yoon Suk Yeol reassured that 2024 is anticipated to witness further alleviation in price pressures. Committing to safeguard the financially vulnerable segments, particularly small business owners, the government aims to ensure they reap the benefits of the impending inflation deceleration.

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(with Reuters inputs)

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Published January 1st, 2024 at 19:47 IST

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