By Choi Sung-jin
Now that the United States is moving to a tighter monetary policy, the attention of domestic analysts is on how Korea will respond.
According to reports, most experts believe Korea also will have to raise key interest rates, but differ on when and how high.
In a business paper's survey of financial experts, about 30 percent predicted the Bank of Korea will raise its benchmark rate in the first half of next year, 25 percent pointed to the second half and another 25 percent said the BOK would wait until the first half of 2017.
Despite the protracted economic slump, the interest rate hike will be inevitable to prevent an abrupt capital outflow, they said. "If the Fed comes up with additional rate increases in the first half of next year, the BOK will have no choice but to follow the U.S. example," said Bae Sang-keun, vice president of the Korea Economic Research Institute.
Others were more cautious. "The U.S. rate increase will likely be slower compared with 1994, 1999 and 2004," said Yun Yeo-sang, a KDB Securities analyst. "The utmost priority should be on the recovery of the domestic economy rather than on a swift response to the U.S. move."
Those who call for prudence noted that China's economy would bottom out in the latter half of next year to push up Korea's exports to the world's second-largest economy and provide a buffer that cushions possible shocks from a rate increase. As long as there are no abrupt fund outflows, monetary authorities should determine interest rate policy reflecting the domestic economic situation, they said.
As to the "optimal" interest rate gap between the U.S. and Korea, the largest share, 23 percent, cite 1 percentage point, followed by 1.5 percentage points (19 percent of respondents) and 0.5 of a percentage point (11 percent).
"Right now, there is a gap of 1 percentage point between the growth potential of the two economies so that the gap between their interest rates should maintain that level," said an analyst who wanted to remain anonymous. "As were the cases of Taiwan and other Asian nations, the capital outflow accelerated when the interest rate gap widened to more than 1 percentage point."
There is now a 1 percentage-point gap between the two countries' interest rates. Korea's key rate has been frozen at 1.5 percent for the past six months and the U.S. Federal Open Market Committee raised its target band for rates to 0.25-0.5 percent Wednesday.
Now that the United States is moving to a tighter monetary policy, the attention of domestic analysts is on how Korea will respond.
According to reports, most experts believe Korea also will have to raise key interest rates, but differ on when and how high.
In a business paper's survey of financial experts, about 30 percent predicted the Bank of Korea will raise its benchmark rate in the first half of next year, 25 percent pointed to the second half and another 25 percent said the BOK would wait until the first half of 2017.
Despite the protracted economic slump, the interest rate hike will be inevitable to prevent an abrupt capital outflow, they said. "If the Fed comes up with additional rate increases in the first half of next year, the BOK will have no choice but to follow the U.S. example," said Bae Sang-keun, vice president of the Korea Economic Research Institute.
Others were more cautious. "The U.S. rate increase will likely be slower compared with 1994, 1999 and 2004," said Yun Yeo-sang, a KDB Securities analyst. "The utmost priority should be on the recovery of the domestic economy rather than on a swift response to the U.S. move."
Those who call for prudence noted that China's economy would bottom out in the latter half of next year to push up Korea's exports to the world's second-largest economy and provide a buffer that cushions possible shocks from a rate increase. As long as there are no abrupt fund outflows, monetary authorities should determine interest rate policy reflecting the domestic economic situation, they said.
As to the "optimal" interest rate gap between the U.S. and Korea, the largest share, 23 percent, cite 1 percentage point, followed by 1.5 percentage points (19 percent of respondents) and 0.5 of a percentage point (11 percent).
"Right now, there is a gap of 1 percentage point between the growth potential of the two economies so that the gap between their interest rates should maintain that level," said an analyst who wanted to remain anonymous. "As were the cases of Taiwan and other Asian nations, the capital outflow accelerated when the interest rate gap widened to more than 1 percentage point."
There is now a 1 percentage-point gap between the two countries' interest rates. Korea's key rate has been frozen at 1.5 percent for the past six months and the U.S. Federal Open Market Committee raised its target band for rates to 0.25-0.5 percent Wednesday.
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