Kim Yongbum: "High Interest Rates, Inflation, and Exchange Rates Are the Cost of Success, Not Signs of Crisis"

Kim Yongbum, Policy Chief, Delivers Facebook Message on the 24th

On High Exchange Rates: "Foreign Selling Has Driven It Up"

Interest Rates: Speed Matters; Inflation Requires Extraordinary Response

On Rising Real Estate: "Government Mu

Kim Yongbum, policy chief at the Blue House, stated on the 24th, "Today's high interest rates, high inflation, and high exchange rates are the inevitable costs of success that accompany Korea's transition to a new phase of economic growth," emphasizing that these are "not signs of crisis, but rather the frictional sounds of progress." Regarding real estate, he noted that simply increasing supply is not enough, expressing that "the government must act more quickly and more decisively than the market."

On the same day, Kim wrote on his Facebook page under the title "The Cost of Success," saying, "A step-up in the overall price system of the economy is not inherently a negative phenomenon," and emphasized, "Rather, this can be viewed as the Korean economy, long accustomed to low growth and low inflation, searching for a new equilibrium." He indicated that the so-called "three highs"—interest rates, exchange rates, and inflation—are actually positive signals.

Kim Yongbum, policy chief, attends the K-Chosun Future Vision meeting chaired by President Lee Jae-myung at Hotel Hyundai By Lahan Ulsan on May 13, 2026. Photo by Yonhap News

Kim explained, "The current weakness of the won is not due to a shortage of foreign currency, as it was during the foreign exchange crisis," and added, "As the KOSPI has surged by more than 70%, the value of domestic stocks held by foreign investors has doubled from 1,300 trillion won at the end of last year to 2,600 trillion won recently." He argued that foreign investors have sold a cumulative total of 110 trillion won this year to realize capital gains, and that this demand for currency exchange has pushed up the exchange rate.

He continued, "The current account is showing a record surplus, and the foreign currency funding market is stable," adding, "This is a paradoxical outcome created by the success of the Korean economy, not a sign of vulnerability." He further stated, "Now is the time to assess the situation by focusing not on the exchange rate level itself, but on the flow of foreign currency funding and liquidity indicators."

Regarding interest rates, Kim said, "This is not an issue to be taken lightly," but also noted, "The recent rise in interest rates is the result of several factors, including concerns over global inflation driven by oil prices, the potential shift to tighter monetary policy in major countries, and expectations for policy rate hikes following upward revisions to growth and inflation forecasts." In Korea's case, he expressed further concerns that "along with inflation worries, the robust growth trend is also accelerating the pace of interest rate hikes."

However, Kim expressed concern, saying, "What matters more than the interest rate level itself is the pace of increases and volatility. In an economy where household debt is high, a rapid rise in interest rates inevitably increases the interest burden and financial instability for vulnerable groups." He added, "Both approaches—unconditionally suppressing upward pressure on interest rates or, conversely, allowing high interest rates to persist—are risky. What is needed is to manage market interest rates so they do not outpace economic fundamentals excessively, while ensuring that shocks do not concentrate in vulnerable sectors."

Additionally, regarding inflation, Kim said, "The rise in oil prices triggered by the Middle East war is increasing cost pressures across energy, food, and logistics globally," and evaluated, "Inflation resulting from supply shocks is difficult to control through monetary policy alone and is not easily resolved in the short term." Kim especially stressed that, as prolonged instability in the Middle East adds to the burden on ordinary people's livelihoods, "an extraordinary response mobilizing all available policy tools is required."

Kim's post also included analysis of sectors beyond the three highs. On real estate, he stated, "This is the area where the government must respond most decisively," and analyzed, "With rising nominal growth rates, synchronized asset markets, and a sharp decline in new housing supply converging, upward pressure on housing prices is accumulating again."

Kim further said, "If capital flows into high-priced real estate, the very phase of new progress that the Korean economy has entered could be destabilized. While expanding supply is necessary, it alone is not enough. Structural demand management measures to curb speculative demand and block excessive capital inflows into real estate must be implemented alongside supply policies." He reiterated, "The government must act more quickly and more decisively than the market."

President Lee Jae-myung is entering the Senior Secretary Meeting held at the Cheong Wa Dae Yeomin Hall on the 7th. Photo by Yonhap News Agency

On external soundness, he pointed out that "a redefinition of perception is necessary." He explained, "Net external financial assets are shrinking rapidly because the value of assets that foreigners have invested in Korea is increasing much faster than the value of overseas assets held by Koreans." He warned, "As foreign-owned domestic assets have expanded to an unprecedented scale, any sudden movement of funds due to changes in the global environment or rebalancing could deliver significant shocks to the foreign exchange and financial markets."

Kim also stated, "Foreign reserves have stagnated at around $400 billion for eight years, and with the internationalization of the won, the speed and magnitude of capital movements are set to increase." He explained, "Rather than focusing on net asset size or the level of the exchange rate, we must use the sustainability of the current account surplus and the stability of the foreign currency funding market as key management indicators, while also making it a policy priority to expand foreign reserves and establish liquidity safety nets."

Furthermore, Kim said, "The most structural buffer against foreign capital volatility is to increase the proportion of domestic stock ownership by Korean investors," and noted, "Expanding policy incentives for stock ownership, such as promoting retirement pensions and youth-type ISAs, is not just about fostering the capital market but is now a core tool for managing external soundness."

He concluded, "If the Korean economy has entered a new phase, our perspective must also evolve accordingly. Trying to interpret the new era with the grammar of the old will cause us to miss what is visible and respond inappropriately. What we now need is not commentary to ease anxiety, but the insight to clearly recognize the changed reality with fresh eyes."

This content was produced with the assistance of AI translation services.