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4 years ago

BOK chief expects U.S. rate hike to have little impact on Korean economy

Arirang News
Arirang News
Let's take a closer look at the impact the Fed's rate hike might have on South Korea.
As we heard, the Bank of Korea's rate is now lower than the Fed's for the first time in many years.
Let's bring in our business correspondent Kim Hyesung.
Hyesung,... the Fed's move has put South Korea's central bank in a tricky spot...

That's right, Mark.
The Bank of Korea currently has the nation's benchmark interest rate at one-point-five percent.
Like you said, with the Fed's decision Wednesday,...for first time in more than ten years, the U.S. key interest rate at a target range of 1-point-5 to 1-point-75 percent is now higher than that of South Korea's.
As a result,... the BOK held an emergency meeting at 8 AM this morning.
Governor Lee Ju-yeol said the central bank is ready to act to stabilize financial markets if necessary, but brushed off concerns that the relative yield differential between the Korean and U.S. base rates could trigger sharp and sudden capital outflows from the local economy.
Officials at the emergency meeting said the Fed's decision met market expectations and that U.S. markets took the announcement in their stride on Wednesday.
They added that Korea has strong economic fundamentals and the fiscal soundness to prevent a sharp capital outflow.
Governor Lee added that the Fed will likely maintain its rate hike schedule, with around two more rate hikes this year, but said its tone may have become hawkish, with an upgraded U.S. economic forecast and all.

So,... if that's the way the Bank of Korea sees it playing out,... does it mean they are going to start raising rates themselves?

Well, the BOK governor was cautious on upcoming rate hike decisions.
Lee, who was reappointed to serve a second term as the BOK chief on Wednesday, said there are many things to check before setting the timing of a rate increase,... including major advanced countries' monetary policy normalization, growing trade protectionism, and also foreign investment in the country.
Of course, South Korea's household debt of around 1-point-35 trillion U.S. dollars is also a key factor policymakers are watching closely.
In his first term, which started four years ago, Governor Lee lowered the benchmark rate five times to a record-low 1-and-a-quarter percent, and then raised it to 1-and-a-half percent last November.
He has since signaled that any further rate hikes will be gradual... in view of subdued inflationary pressures.
At his confirmation hearing Wednesday, Lee pointed to the growing income gap, the aging population and record household debt as factors undermining Korea's economic growth potential...saying it's unlikely Korea's key rate will be raised to levels before the financial crisis.
The Bank of Korea's next monetary policy meeting is scheduled in April and May.
But with local elections slated for June, many experts believe the central bank won't raise rates before then, but possibly make its move in July.

Some big decisions ahead...

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