South Korea prepared to stabilise markets, consumer inflation eases

The South Korean government on Friday has said it will work with the Bank of Korea to swiftly deploy required market stabilisation measures after Taeyoung Engineering & Construction said it was restructuring debt.

"If needed, the Bank of Korea will prepare liquidity support measures through open market operations," Choi Sang-mok, the finance minister said in a meeting with the central bank and regulators in Seoul.

The government has not elaborated on the issue.

Taeyoung E&C is a mid-sized South Korean builder. The company on Thursday said it planned to restructure its debt, which amounts to 4.58 trillion won ($3.6 billion) including project financing loans.

This makes up for less than 1 per cent of assets held by local financial institutions.

"Local banks' losses related to Taeyoung E&C won't be too big," Samsung Securities said in a report on Thursday.
"We expect swift restructuring in the project financing market and in doing that, shocks stemming from this won't last too long as timely government support is likely to be on the way," it added.

As for its economy, the Asian nation's annual consumer inflation eased for a second month in December and came in below market expectations, backing policymakers' outlook that price pressure will gradually ease through 2024.

The December consumer price index (CPI) gained 3.2 per cent from a year earlier, compared with a rise of 3.3 per cent in November, and was weaker than a median 3.3 per cent rise tipped in a Reuters survey.

The index flatlined on a monthly basis. Inflation data of Friday supports the Bank of Korea's view on the near-term inflation path – price pressure will gradually ease to near the bank's target level of 2 per cent towards the end of next year as policymakers gear up to a pivot to monetary policy easing.

For the 2023 full year, consumer inflation eased to 3.6 per cent from 5.1 per cent in 2022.

Most economists see the BOK as having reached its peak rate and expect it to start easing policy from the third quarter of next year as cooling inflation makes a restrictive policy rate at 3.50 per cent difficult to justify to the public.

A breakdown of the data showed prices of fresh food items surged 14.5 per cent year-on-year in December but prices of industrial goods rose 2.1 per cent year-on-year, slowing from 2.5 per cent in November.