The Bank of Korea stated on July 29 that it expects strong fundamental conditions to limit downward pressure on stock prices amid recent market conditions.
In a report submitted to the National Assembly's Economic Committee, the Bank noted, "While foreign investors continue to engage in net selling as part of portfolio rebalancing, the large-scale operating profit forecasts for semiconductor companies may help mitigate downward pressure on stock prices."
The Bank observed, "Since May, there has been a concentration of large-scale net selling by foreign investors, along with an increase in leveraged investments, leading to significant fluctuations in stock prices." It added that the stock market is likely to respond sensitively to external uncertainties, including AI industry prospects, changes in major countries' monetary policies, and global capital flows.
Regarding monetary policy, the Bank hinted at maintaining a tightening stance. It stated, "We believe it is necessary to continue the interest rate hike trend, and the timing and pace of any additional increases will be determined by assessing inflationary pressures, economic improvement trends, and financial stability conditions."
In explaining the rationale behind the decision to raise the benchmark interest rate, the Bank noted, "We considered that growth is strengthening due to favorable semiconductor market conditions, while inflation rates are expected to exceed target levels for an extended period, and risks to financial stability persist."
The Bank assessed that inflationary pressures remain high. It stated, "Future consumer price inflation is expected to remain elevated due to uncertainties related to international oil prices and the Middle East situation, increased demand pressures from economic improvement, and the transmission of cost shocks. Factors such as international oil prices, exchange rates, summer weather conditions, and the government's inflation stabilization measures will continue to pose upward and downward risks to the inflation trajectory."
Concerning the financial system, the Bank diagnosed that concerns over accumulating financial imbalances are growing. It explained, "As housing prices continue to rise, leveraged investments have increased. While rising interest rates may alleviate inflationary pressures and the risk of accumulating financial imbalances, the possibility of increased defaults in vulnerable sectors remains."
It added, "Housing-related loans in the financial sector continue to show solid growth, and other loans have also increased significantly. There are concerns that housing prices in the capital region may continue to rise due to expectations of further increases, improvements in income and asset conditions, and the potential for continued pressure on household debt, necessitating heightened awareness of related risks."
* This article has been translated by AI.
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