BOK Trapped Between Narrowing Rate Gap and Won, Housing Pressures

The Bank of Korea faces a policy dilemma as the U.S. Federal Reserve's consecutive rate cuts widen the interest rate differential, while exchange rate volatility and housing market concerns constrain the central bank's ability to follow suit.

**BOK Rate Dilemma**

Despite the Fed cutting its benchmark rate for the third consecutive time, the Bank of Korea remains hamstrung by won weakness and property market overheating risks. The won closed at 1,473 per dollar, with its decline limited despite the Fed's rate cut. BOK Governor Changyong Rhee noted that if the exchange rate maintains current levels, inflation could rise an additional 0.2 percentage points next year. Consumer prices have risen 2.4% year-on-year for two consecutive months, and concerns that further rate cuts could reignite housing market speculation are acting as additional constraints on monetary easing.

**Short-term Funds Surge**

As the domestic stock market fluctuates, securities firms' repurchase agreement (RP) balances hit a record high of 104.97 trillion won. Cash management account (CMA) balances also reached 98.3 trillion won, approaching the previous record. Meanwhile, margin loan balances set new highs for three consecutive trading days at 27.41 trillion won, indicating simultaneous expansion in demand for both safe and risky assets.

**Dividend Investment Competition**

Ahead of next year's implementation of separate taxation on dividend income, all nine major domestic asset managers have assembled high-dividend ETF lineups, entering full-scale competition. Whether major companies including Samsung Electronics, Hyundai Motor, and Kia will expand dividends, along with policy normalization in traditional dividend sectors such as shipbuilding, refining, and power generation, are emerging as key variables that could reshape the market landscape.

**Financial Product Investor News**

The Fed raised its 2024 U.S. economic growth forecast to 2.3%, up 0.5 percentage points from the September projection of 1.8%. Fed Chair Jerome Powell noted that AI and data center-related corporate investment is increasing, and structural productivity has improved to the point where growth and income continue to rise even without significant employment gains. The Fed announced it will begin purchasing approximately $40 billion in short-term Treasury securities monthly starting December 12. However, three FOMC members dissented—the first such split since September 2019—with committee members' year-end 2024 rate projections showing greater dispersion than in September.

**Hana Financial Opts for Stability**

Hana Financial Group reappointed six of seven subsidiary CEOs whose terms expire at year-end. Hana Securities CEO Kang Sung-mook's reappointment reportedly came after achieving a turnaround through emergency management measures, organizational restructuring, and risk management amid declining profitability. Hana Life Insurance CEO Namgung Won and Hana Insurance CEO Bae Sung-wan were also recommended, along with CEOs from Hana Asset Trust, Hana Alternative Investment Asset Management, and Hana Financial TI.

**Export-Import Bank Launches AI Support Program**

The Export-Import Bank of Korea will launch a 20 trillion won financial support program for AI industry development over five years starting next month. All AI-related sectors are eligible for low-interest loans or direct and indirect investment support. The bank also signed cooperation agreements with LS Electric, LG Innotek, and HD Hyundai Robotics to build an AI industrial ecosystem and promote export industrialization, providing customized financial support for export projects in robotics, smart automation, AI semiconductors, sensors, and intelligent power and energy solutions.

**High-Dividend ETF Battle Intensifies**

Ahead of next year's separate taxation on dividend income, Korea's high-dividend ETF market has entered full-scale competition. All nine asset managers ranked by assets under management now have high-dividend lineups, with differentiated strategies becoming clearer. KB Asset Management has raised its Samsung Electronics weighting to 27%, while Timefolio Asset Management has built a tech-based high-dividend portfolio with Samsung Electronics and SK hynix comprising more than 30% combined.