Bank of Korea Governor Shin Hyun-song apologized on October 12 for failing to adequately warn investors about the risks of single-stock leveraged exchange-traded funds, while leaving the door open to further interest rate increases as inflation remains above target.
The products were introduced in May to keep investment capital in South Korea rather than send it to overseas markets. Regulators subsequently suspended new listings and raised the minimum cash deposit required for investors from 10 million won to 30 million won, effective July 31, amid concerns about excessive trading and market volatility.
Shin acknowledged that the central bank had underestimated volatility in domestic equities and memory-chip stocks. He also conceded that the Bank of Korea’s June assessment had been inappropriate in suggesting the products could help retain domestic funds and attract foreign investment.
Monetary policy remains a key concern. The Bank of Korea raised its benchmark interest rate to 3.00% in August, following an earlier increase in July. The central bank has indicated that inflation is likely to remain above its 2% target for a prolonged period, with future decisions dependent on price pressures, economic growth and financial stability.
The policy challenge extends beyond financial markets. Rising housing prices around Seoul and growing household debt remain concerns for policymakers, while strong semiconductor exports are supporting economic activity. Further rate increases could help contain inflation but would also increase borrowing costs for households and businesses.
For investors, the latest statements highlight the tension between encouraging market participation and limiting risks created by leveraged products. The central bank’s next moves will depend on whether inflation eases without worsening household debt or undermining economic growth.
SOURCES
