Korean News

Fed policy puts pressure on Korea to raise rates again

The Bank of Korea (BOK) is under increasing fed policy puts pressure to raise interest rates by another 25 basis points next month. To ease market tensions between the US Federal Reserve’s hawkish stance and – there is no doubt.

After Fed Chairman Jerome Powell sent an unexpected signal for another overnight rate hike, the prospect of the BOK taking another small step further brightened the growing concern about the expansion of interest rates in the between the two countries. ์นด์ง€๋…ธ์‚ฌ์ดํŠธ

This broke the popular forecast that Korea would keep the maximum policy rate at the current 3.5%. Although Korean consumer prices are showing signs of slowing after falling to 4%. In February for the first time in 10 months, the latest hawkish comments from the Fed are a burden for the BOK.

Rate decision, according to economists. Market consensus is that the Fed will raise its benchmark interest rate by 50 basis points to a range of 5% to 5.25% at its next rate-setting meeting this month. This will increase the main difference between the BOK and the Fed to 1.75 percent. This is the highest in 23 years since the rate reached 1.5 percent between May and October 2000.

The Fed’s Powell is setting the stage for higher and possibly faster rate hikes

Economists also expect the BOK to take another step forward in April with the Fed’s much-anticipated monetary tightening process.

Kang Hyun-ju, an economist at the Korea Capital Market Institute, said, “Another BOK rate hike seems to be in sight as the Fed shows signs of extending its monetary easing measures in a hawkish tone.” .” “The BOK will consider general factors, such as the development of the dollar exchange rate.”

“BOK Governor Rhee Chang-yong also left open the possibility of the situation, but it seems that it is too early to tell the highest level of the forecast, as the economy is still showing signs of weakness. because of the weak export of key materials. things like semiconductors,” he said.

The comments echoed Rhee’s comments overnight that the central bank does not plan to cut key rates anytime soon. Many members of the BOK Monetary Council are waiting and seeing whether they will continue to raise the key rate.

Or keep it calm, after considering how many uncertainties such as monetary policy The Fed, the war between Russia and Ukraine, the Chinese economy. The recovery and the state of the housing market here are all on the road.

He also said the BOK will closely monitor interest rate differentials with the Fed by “leaving all options open.”

“Our job is to set a broad monetary policy by putting all the options on the table regarding advertising rates,” he said. Powell’s comments left the Korean stock market reeling on Wednesday.

The KOSPI benchmark has posted recent gains. On the sentiment of investors slowing down fueled by the hawkish Fed.

The exchange rate closed at 2,431.91, down 1.28% or 31.44 points from the previous trading day. Retail investors bought local shares worth 942.2 billion won.

But they did not stop the sell-off led by companies and foreign investors. The tech-heavy Kosdaq fell 0.22%, but the secondary stock market fared better with strong performance from major battery stocks. ์˜จ๋ผ์ธ์นด์ง€๋…ธ์‚ฌ์ดํŠธ

Koreans gained ground against the dollar due to growing interest in safe-haven assets. The won dollar exchange rate closed at 1,321.4 won per dollar, up 22 won. It was the first time in a week that the number exceeded 1,320 wins.

The Bank of Korea maintains a rate hike but supports a hawkish tilt

The BoK’s “hold” decision was widely expected. But conflicting polls, negative comments from Governor Rhee Chang-yong. And growing uncertainty suggest the BoK will leave the door open for a rate hike now.

We believe that the BoK may enter an easy phase in the fourth quarter, as inflation is expected to fall to close to 2%.

Bank of Korea has been included for the first time since April 2022

Unsurprisingly, the BoK left its key rate unchanged at 3.5%, ending the highest rate at any policy meeting since April 2022. But the BoK pointed out that the rate hike may not go through.

The board members were split on the price, with five members opening 3.75% while one remained at 3.50%. In our opinion, the BoK is holding off until the next decision in April. To see how the increase in interest rates will affect prices in the coming months and how the Fed’s actions will change house price changes.

The BoK expects the headline CPI to slow to a 4% level by March and fall to a 3% level by the end of the year. Governor Rhee stressed that if future inflation conditions match the current path of the BoK’s policy, the BoK does not need to tighten its policy rate, but there is uncertainty in the global commodity price environment the price is still high.

The BoK has lowered its GDP and CPI forecasts for 2023

In our view, the BoK’s growth prospects are less surprising than the decision to hold policy rates itself. The BoK revised its GDP forecast for 2023 from 1.7% year-on-year (November forecast) to 1.6%, but that was due to a weaker than expected quarter of GDP falls. led to a reduction in annual growth in 2023.

In terms of forecasts, the BoK has not significantly changed its GDP growth forecast compared to the November view. This is in sharp contrast to the market agreement which has already lowered its GDP forecast significantly from the 1% middle level to the low 1%.

Also, the recently updated GDP forecast is significantly higher than ING’s growth forecast of 0.6%. We believe the BoK’s growing optimism is due to better prospects of improving external conditions, which will boost Korean exports, in the second half of the year.

It is true that the US economy is showing stability despite the rise in loans, mild weather has supported the EU economy during the winter and China is recovering from Covid faster than expected. ๋ฐ”์นด๋ผ์‚ฌ์ดํŠธ

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