On August 21, Deputy Prime Minister and Minister of Finance and Economy Koo Yun Cheol convened a joint Market Situation Review Meeting[1] at the Korea Federation of Banks building to review developments in the financial and foreign exchange (FX) markets and discuss policy responses.

At the meeting, participants focused in particular on the recent rise in long-term interest rates in major economies and its potential impact on Korea. They assessed that, amid continued uncertainty in the Middle East, a combination of factors, including increased government bond issuance across major economies and greater corporate bond issuance by global AI companies, has led to higher interest rates, particularly on ultra-long-term bonds. Against this backdrop, participants agreed to closely monitor developments in the domestic bond market and continue assessing the impact of the recent rise in long-term interest rates on domestic and global financial markets, borrowing costs for businesses and households, and the real economy. They also agreed to promptly formulate and announce support measures to ease the debt burden on small business owners and alleviate financial pressures on low-income and vulnerable borrowers, so as to prevent rising interest rates from imposing excessive strain on vulnerable borrowers.

Participants observed that the KRW/USD exchange rate, which had risen to the 1,550 won range in early July, has returned to the 1,300 won range for the first time in 11 months, supported by factors including a record-high current account surplus and easing foreign investor equity rebalancing. Given that factors exerting both upward and downward pressure on the exchange rate remain, including geopolitical tensions in the Middle East and monetary policy developments in major economies, they will remain vigilant and respond as necessary to market volatility.

Participants attributed the significant quarter-on-quarter decline in Korea’s net international investment position (NIIP) in the second quarter, announced on August 20, to an increase in the value of domestic equities held by foreign investors, driven by improved corporate performance and rising stock prices during the quarter. In particular, there was consensus that Korea’s external soundness remains stronger than ever, considering that net external assets in debt instruments, which represent fixed payment obligations, increased by USD 2.3 billion from the previous quarter and that the current account surplus reached a record high of USD 191.0 billion in the first half of the year.

As for household debt, it was noted that despite an increase in the overall amount, the household debt-to-GDP ratio has declined. However, given that the ratio remains high compared with major economies, the authorities agreed to continue efforts to manage household debt while ensuring that borrowers with genuine financing needs continue to have access to funding. They will also proceed with the previously announced measures concerning single-stock leveraged products as planned.

In light of continued uncertainty in the external environment and the growing interconnectedness of the macroeconomy and financial, FX, and asset markets, participants agreed to remain vigilant and maintain a robust monitoring and response framework centered on the Market Situation Review Meeting.

Please refer to the attached files.