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Wed, February 2, 2022 | 17:00
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Fed rate cut gives BOK more room to maneuver
Posted : 2019-09-19 17:02
Updated : 2019-09-19 17:27
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Bank of Korea (BOK) Governor Lee Ju-yeol listens to questions from reporters at the BOK headquarters, Sept. 19. Yonhap
Bank of Korea (BOK) Governor Lee Ju-yeol listens to questions from reporters at the BOK headquarters, Sept. 19. Yonhap

By Lee Kyung-min

The 25 basis point key rate cut by the U.S. Federal Reserve, Wednesday (local time), will allow Bank of Korea (BOK) to have more discretion in its monetary policy, the central bank head said Thursday.

The Fed reduced its benchmark short-term rate to the range of 1.75 percent to 2 percent, with officials suggesting they were open to another cut before the year's end.

The cut, which is the second in just two months, is considered a move to support the U.S. economy in a time of elevating uncertainty, with the drawn-out trade feud with China showing no signs of abating.

"It is true that the Fed's rate cut gives us more room to maneuver in implementing monetary policy," BOK Governor Lee Ju-yeol told reporters.

"No major fluctuation was observed in the U.S. financial markets including stocks and treasury yields, an indication that the rate cut was largely in line with market expectations," he said.

Stocks ended slightly higher, hours after falling on the Fed's announcement and Treasury yields barely moved.

While the rate cut came despite a lack of clear signals, Lee said the Fed has not ruled out a further cut given Chairman Jerome Powell's continued, consistent stance on helping support economic expansion.

"The Fed chairman said he would take appropriate actions to help sustain economic growth, so it does not mean that the Fed considers a rate cut as not an option," he said.

Chief among the factors in determining Korea's key rate will be external uncertainties, notably the U.S.-China trade dispute, Lee said.

"The rate-setting monetary policy board considers growth, consumer prices and financial stability among other factors. Adding to our concerns are recently heightened geopolitical risks which we will continue to monitor closely," he said.

The recent attack on key oil facilities in Saudi Arabia also bears close monitoring, as the subsequent oil price spike could have grave implications on the economy, Lee said.

"A rise in oil prices will have a substantial impact on the Korean economy. However, the recent outbreak of African swine fever is not having as big of an impact at the moment," Lee said.

The BOK is under growing pressure to lower its key base rate as the Korean economy seems to be entering a so-called new normal of "three lows" ― growth, interest rates and inflation ― a rather bleak combination of economic conditions already in progress in many advanced countries.

The much-feared economic conditions are fast becoming a reality after consumer prices dropped in August, the first time in the 54 years that the statistics authorities have been compiling relevant data.

The BOK cut its key rate to 1.5 percent from 1.75 percent in July, but left it unchanged in August. The next rate cut is expected Oct. 16.




Emaillkm@koreatimes.co.kr Article ListMore articles by this reporter



 
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