By Na Jeong-ju
Staff Reporter
Regulators' steps to strengthen the supervision of banks' short-term foreign currency borrowings are pushing money market rates higher, raising the interest burden for households.
Some banks have bought dollars heavily from overseas markets to buy the Korean currency in the local market, a move aimed at maximizing short-term currency gains amid rising value of the won.
Financial regulators have argued such investment behavior is destabilizing the local currency market, pledging all-out measures against the ``speculative currency trading.''
With regulators keeping an eye on banks' short-term currency borrowing, some lenders have turned their eyes to short-term money markets to raise funds, fueling demand for the certificate of deposits (CDs).
The interest rates of the 91-day CDs, the benchmark rate for variable-rate bank loans, rose above 5 percent last week for the first time in 4 years. The CD rates are expected to keep an upward momentum for the time being as the Bank of Korea (BOK) is poised to keep its monetary policies tight to stem inflationary pressure from economic recovery.
In line with the rises in CD rates, banks have hiked the interest rates for variable-rate housing loans. Kookmin Bank, the country's largest lender, raised the loan rates by 0.02 percentage points last week, while its rivals, Woori Bank and Shinhan Bank, increased their mortgage rates by 0.03 percentage points.
According to data from the central bank, about 97 percent of housing loans are exposed to interest rate fluctuations, which means most mortgage borrowers are vulnerable to interest rate hikes.
Analysts forecast, if economic growth gains momentum in the latter half of the year, the central bank may move to raise its call rate once or twice to prevent the economy from being overheated. The central bank has ruled out any sharp economic rebound, but predicted growth momentum will become stronger.
``If the economy picks up steam in the latter half, the BOK will face growing pressure to hike its call rate,'' said Cho Young-moo, an economist at LG Economic Research Institute. ``The recent rises in CD rates tend to reflect anticipations of stronger economic recovery in the latter half.''
The Korea Institute of Finance said earlier that the rises of CD rates will raise the interest burden for mortgage borrowers significantly amid sluggish home prices. In the long run, the rises of interest payment burden may dampen consumer spending, and weaken the country's economic growth potential, it said.