The Bank of Korea (BOK) stated today (July 29) that "favorable fundamental conditions, such as large-scale operating profit forecasts for semiconductor companies, are expected to limit downside pressure on domestic stock prices."

In a business report submitted to the National Assembly's Strategy and Finance Committee earlier today, the BOK addressed recent stock market conditions, noting that the market "has experienced significant adjustments due to concerns over a slowdown in AI investments and large-scale net selling by foreign investors."

The BOK assessed that "in particular, since May, stock prices have fluctuated significantly as large-scale net selling by foreigners concentrated and leveraged investments increased."

It added, "Going forward, the stock market is expected to react sensitively to external uncertainties, such as the outlook for the AI industry, changes in major economies' monetary policies, and global capital flows."

In its business report earlier this month, instead of mentioning leveraged investments, the BOK cited factors such as portfolio rebalancing at the end of the first half of the year as the background for stock price fluctuations.

At the time, the central bank also assessed that the possibility of domestic stock prices shifting to a secular downward trend was limited, citing sustained upward revisions to semiconductor companies' operating profit forecasts and government efforts to improve capital market systems.

Regarding the operation of monetary policy, the BOK stated, "We judge that it is necessary to continue the rate hike stance going forward, and the timing and pace of additional hikes will be determined while monitoring the degree of inflationary pressure, economic recovery trends, and financial stability conditions."

Previously, on July 16, the BOK raised its base rate by 0.25 percentage points from 2.5% to 2.75%.

Regarding the background of the base rate hike decision, it explained, "We considered that while the economic recovery is strengthening driven by the booming semiconductor sector, the inflation rate is projected to exceed the target level for a considerable period, and risks to financial stability continue to persist."

Concerning this year's economic growth outlook, the BOK stated, "The economy recorded high growth in the first half of the year as exports continued their high growth centered on semiconductors and consumption maintained a favorable trend," adding, "Going forward, the semiconductor sector's expansionary phase is expected to persist, showing solid growth centered on exports and investment."

However, the BOK noted, "The fact that the benefits of the semiconductor boom are concentrated in certain industries and income brackets is a factor that partially constrains spillover effects," and evaluated that "uncertainties surrounding future developments in the Middle East situation, the pace of AI investments, and U.S. tariff policies remain high."

It also observed that upward pressures on inflation have grown.

The BOK projected, "Demand-side inflationary pressures are likely to gradually increase due to improved income conditions and expanded investment resulting from the semiconductor boom."

It continued, "Companies' incentives to raise prices have also grown due to the expanding rise in import prices driven by sustained high exchange rates and surging memory semiconductor prices," adding, "Amid high uncertainties regarding international oil prices after the second half of the year, price increases for manufactured goods and personal services are expected to expand, keeping the inflation rate above the target level."

It evaluated that upward and downward risks to the future inflation path remain, including international oil prices and exchange rates, summer weather conditions, and the government's reinforced price stability measures.

Regarding recent won-dollar exchange rate trends, the BOK assessed, "Entering July, the Korean won has shown a sharp appreciation compared to other currencies such as the U.S. dollar, reversing its previous downward trend."

The BOK stated, "The exchange rate has fallen to the mid-to-high 1,400 won range due to improvements in foreign exchange supply and demand, such as the easing of net selling of stocks by foreigners following adjustments in domestic stock prices." It added, "However, as uncertainties surrounding the Middle East situation and the U.S. Federal Reserve's monetary policy path are growing, we will remain vigilant against potential market volatility when external risks increase and continue efforts to stabilize the market."

Regarding the housing market and household debt conditions, the BOK assessed, "Concerns over the accumulation of financial imbalances are growing as the upward trend in housing prices expands again, centered on the Seoul metropolitan area, and investments utilizing leverage increase."

It also pointed out, "While rising interest rates are expected to weaken upward price pressures and alleviate the risks of financial imbalance accumulation, the possibility of rising defaults centered on vulnerable sectors remains present."

Consequently, it stated, "There is a need to pay closer attention to related risks, as housing prices in the Seoul metropolitan area run the risk of continuing a high upward trend due to expectations of additional price increases and improved income and asset conditions, and household debt growth pressures are likely to persist."

The BOK added, "However, government real estate measures, tightened management of household loans by the financial sector, and rising loan interest rates are expected to partially mitigate related risks."

As for the semiconductor sector, the BOK maintained its outlook that "it will show an expansionary phase for a considerable period due to the expansion of AI application areas and related infrastructure."

It also pointed out that "potential downside risks include financial market adjustments due to concerns over AI profitability, reductions in physical investments by big tech companies, and energy bottlenecks."

Furthermore, the BOK stated, "We plan to seamlessly build the foundation for the commercialization of deposit tokens through pilot projects for national treasury disbursement utilizing the BOK central bank digital currency system and follow-up live transactions involving the general public."

Regarding the won-stablecoin, it expressed the stance that "while promoting innovation, it is necessary to comprehensively consider the impact on the overall macroeconomy—such as the risk of weakened monetary policy effectiveness and the bypassing of foreign exchange policies—to minimize risks upon introduction."

(Photo: Yonhap News)