Government lowers interest rates: The DONG-A ILBO
In the week ending June 26, Korea’s Financial Supervisory Service Governor Lee Bok-hyun warned banks to rake in large sums of profit via the net interest rate spread , citing growing criticism of lenders over profiting interest. The warning immediately followed President Yoon Suk-yeol’s request to financial authorities and institutes to work on reducing tax burdens on consumers. Ruling party Rep. Kwon Seong-dong also called on oil refining companies to share the burden of rising oil prices. The series of remarks led banks to lower mortgage rates by 0.6 percentage points and prompted oil companies to declare that they will immediately pass on the tax cuts to the price of oil.
Although the government and legislators may believe they have done their job well, consumers hardly feel any change. Lenders have lowered interest rates on some high-profile financial products while maintaining rates that apply to most consumers. Oil companies can only force their directly operated service stations to lower the price and not the price set by unaffiliated stations. The former Moon Jae-in administration adopted an open price system for foods earlier this year, such as fried chicken, pizza and coffee, which was aimed at curbing soaring dining costs, but failed miserably. . This is an example that shows that government efforts to influence market prices are difficult to succeed.
The current Yoon administration, which won the election promising to rebuild the values of the market economy and liberal democracy, is caught between a rock and a hard place. Strictly following market principles amid soaring inflation and interest rates would trigger criticism from the public that it does nothing. On the other hand, forcing lenders and corporations to stabilize the market as his predecessors did would be tantamount to abandoning his principles of reviving the private sector-led economy. The Korean government should work hard to find a market-friendly solution to fight inflation by promoting free competition in the business sector while focusing on restoring the market mechanism and relaxing regulations.