Kim Yong-beom, the Blue House policy chief, said the trio of high interest rates, high inflation, and a strong dollar is "the expense of success that inevitably accompanies Korea's leap to a new level." The point is that the so-called "three highs" should not be seen only as a crisis signal but as a repricing of the price system that appears in a growth phase.
The Deputy Minister wrote on Facebook on the 24th under the title "The expense of success," saying, "Today's high interest rates, high inflation, and strong dollar are not a harbinger of crisis but the friction sound of a leap," adding, "Confusion arises when this friction sound is misread as a crisis signal."
Regarding the current economic situation, the official assessed, "corporations' earnings are hitting a record high and exports are overflowing, but interest rates are rising, the exchange rate is unstable, and home prices are stirring again." As phenomena that appear contradictory on the surface occur simultaneously, markets and public opinion are looking for signs of crisis.
The Deputy Minister found the cause of this confusion in the framework through which the economy is viewed. The official said, "Our frame of reference remains stuck in a previous era," and added, "If the Korean economy has entered a new dimension, the cognitive framework must also evolve."
The Deputy Minister argued that this year the Korean economy is entering a phase approaching a 10% nominal growth rate. The improvement in the performance of semiconductor and artificial intelligence (AI) corporations is lifting terms of trade and export prices, which is leading to higher corporate profits, wages, and asset prices, thereby setting in motion a virtuous cycle of household income growth, increased tax revenue, and a decline in the government debt ratio.
The official said, "It is not a negative phenomenon that the overall price system of the economy is adjusted one notch higher, but a process in which the Korean economy, accustomed to long-term low growth and low inflation, is seeking a new equilibrium." The Middle East war's impact on prices combined with fiscal instability in major advanced economies has also strengthened the high-interest-rate environment, the official said.
However, the official said a strong response is needed for the real estate market. The Deputy Minister said, "With the rise in nominal growth, synchronization across asset markets, and a sharp drop in move-in supply aligning in triple fashion, upward pressure on home prices is building up again."
The official said expanding supply alone is not enough and that structural demand-management measures must be pursued in parallel to curb speculative demand and block the flow of funds being drawn into real estate. The Deputy Minister stressed, "The government must move faster and more forcefully than the market."
On the strong dollar, the official explained that it is not stemming from a shortage of foreign currency as during the foreign exchange crisis. The official analyzed that as the Korea Composite Stock Price Index (KOSPI) rose more than 70% this year, the valuation of domestic stocks held by foreigners doubled to 2.6 quadrillion won, and the resulting demand for currency exchange from foreign selling pushed up the exchange rate.
The Deputy Minister said this is "a paradoxical phenomenon created by success, not a vulnerability of the Korean economy." The official said the situation should be judged based on the flow of supply and demand for foreign-currency funds and liquidity indicators rather than the exchange rate level itself, and added that excessive herding and volatility would be managed proactively.
The official also said the rise in interest rates is not something to view lightly. The Deputy Minister said the recent increase in rates is the result of concerns about global inflation driven by high oil prices, the possibility of a shift to tighter monetary policy in major countries, and expectations for benchmark rate hikes. The official said both approaches—either suppressing rate increases unconditionally or leaving high rates unattended—are dangerous.
On prices, the official said an exceptional response is needed. The Deputy Minister said all possible policy tools should be mobilized, including measures to stabilize energy prices and reforms of unfair market structures such as collusion, adding, "Relying on market functions alone is not enough."
The volatility of foreign funds was also cited as something to manage. The official said that since the scale of domestic assets held by foreigners has grown to an unprecedented level, a sudden movement of funds in the future could shock the foreign exchange and financial markets.
The Deputy Minister said that rather than the size of net worth or the level of the exchange rate, the persistence of current account surpluses and the stability of the foreign-currency funding market should be used as core management indicators. The official also presented expanding foreign exchange reserves and building liquidity backstops as new policy tasks.
As a structural buffer to respond to foreign fund volatility, the official cited expanding domestic stock ownership by residents. The idea is that expanding incentives to hold stocks—such as revitalizing retirement pensions and youth individual savings accounts (ISA)—can serve as key tools for managing external soundness.