Domestic businesses have urged the Bank of Korea (BOK) to be less aggressive in its monetary policy tightening. Concerns are rising about heavier debt burdens as a consequence of the central bank's highly probable decision to raise the benchmark interest rate by 50 basis points to 2.25 percent at Wednesday's monetary policy board meeting, according to industry officials, Tuesday.
In particular, the so-called BBIG sectors ― which refer to batteries, bio, internet and games ― are considered to be especially vulnerable to the envisioned big-step rate hike, given that they have borrowed significant amounts of money to continue investments.
The Korea Chamber of Commerce and Industry (KCCI) said in a recent report that local firms will face a triple whammy, due to rising raw material prices, wages and interest rates.
In the case of battery makers, the soaring prices of lithium and nickel have made it difficult for them to avoid losses. IT firms have suffered worsening profitability as they have had to offer higher salaries to prevent software developers from moving to rival companies.
The KCCI warned that the unprecedented 50-basis-point rate hike will lead companies to spend an additional 3.9 trillion won ($3 billion) on interest payments for their loans.
"In order to stabilize the economy and the financial market, supplementary measures are needed in addition to monetary policies," the business lobby group said. "Considering the impact of the key rate hike on businesses, the central bank should slow down the rate increase, and the government should alleviate the tax burden on companies."
However, the BOK is expected to continue raising the key rate throughout this year to curb inflation and prevent a capital outflow to the U.S. which is set to take another giant step in its rate.
The U.S. Federal Reserve has hinted at another 75-basis-point rate hike at its upcoming rate-setting meeting scheduled for July 26 and 27. This could make the BOK's potential big-step hike fall short of avoiding a reversal of the U.S.-Korea interest rate gap.
Fed Chair Jerome Powell even clarified that the country's benchmark interest rate is expected to reach 3.4 percent by the end of this year.
Against this backdrop, the Federation of Korean Industries claimed, in a recent analysis, that more than 35 percent of Korean conglomerates will not be able to pay interest on their loans with their operating profits if the BOK raises the key rate by 3 percentage points.
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