Policymakers should strive to ensure stability
Global financial markets are fluctuating wildly. This time, however, what seems to be shaking up the stock, bond and currency markets is the booming economy in major countries, especially the United States.
Fears about interest rate hikes, growing inflation and the gloomier outlook for corporate performances sent the U.S. stock market into a tailspin Monday. Bond markets were also weak, as seen by sharp rises in treasury yields, reflecting the expansion of the worldwide economy and signs of upward pressure on U.S. wages. The following concerns about inflationary pressure could push up interest rates, sapping recovery momentum.
When the U.S. economy sneezes, South Korea catches the flu _ a cliche but true nonetheless.
The benchmark KOSPI nosedived by 38.44 points or 1.54 percent Tuesday, after losing 1.33 percent the previous day. Investors went on a panic selling spree after the Dow Jones Industrial Average on the New York Stock Exchange dropped 4.6 percent, recording its steepest-ever one-day point drop. The yield on three-year treasury bonds rose by 3.7 basis points to 2.28 percent.
The Korean currency ended at 1,088.5 won against the U.S. dollar Monday, losing 8.8 won in value, in what analysts called the "triple weakness." The Kosdaq plunged 41.25 points, or 4.59 percent, to close at 858.22, Monday. It was the steepest drop since the tech-heavy secondary bourse sank 77.85 points in August 2007 when the U.S. subprime mortgage crisis began spreading to the rest of the world. On Tuesday, the market remained weak.
The U.S. Fed is highly likely to raise its benchmark interest rate, as many as three or four times this year, forcing the Bank of Korea to do so at least once or twice. That will mean "triple distress" for the nation's economy _ a weakening growth engine, causing capital outflows and detonating the household debt bomb.
It will no doubt put a damper on President Moon Jae-in's economic policy prioritizing fair redistribution rather than growth. Moon's economic team led by Finance Minister Kim Dong-yeon will have to watch the movements of global financial markets more closely than ever. If domestic financial markets remain unstable, all economic policies could prove useless. Kim and BOK Governor Lee Ju-yeol have a lot on their shoulders, which means they should show perfect teamwork.
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