Recent reactions from global markets to Japan’s modest interest rate hike underscore the fragility of today's fiat financial system. Sustaining real interest rates in positive territory for any notable period risks liquidity issues across the monetary landscape. Decades of easy monetary policies and government debt-financing via money printing have left private economies struggling to service debt under normal capital conditions.

Now, South Korea finds itself in a similar predicament. The Korea Development Institute (KDI), a state-run think tank, has advocated for early rate cuts, citing sluggish domestic demand and weaker economic growth. Revised forecasts predict a 2.5% GDP growth for 2024, down from the previous 2.6%, with 2025 projections holding at 2.1%.

Despite robust export growth, weak domestic demand continues to delay economic recovery. KDI lowered its inflation forecasts to 2.4% for 2024 and 2.0% for 2025, down from prior estimates of 2.6% and 2.1%. Consumer inflation is expected to average 2.0% in the latter half of the year, aligning with the central bank’s medium-term target.

In response to similar economic pressures, central banks worldwide have begun or are coordinating entry into interest rate cut cycles in hopes of sustaining this outdated financial system. Last month, the Bank of Korea signaled potential rate cuts after maintaining a 15-year high interest rate of 3.50% for twelve consecutive meetings, though opinions on the timing of these cuts remain divided.