Goldman Sachs Expects Rate Hike in 1st Quarter
By Yoon Ja-young
Staff Reporter
The central bank is expected to implement a 0.25 percent key rate hike in the first quarter of 2010, said Goldman Sachs economist Kwon Goo-hoon, Wednesday.
"Some say that the first quarter seems too early to see a rate hike, but the second quarter would be too late since the policymakers need time to check the effects of the hike," the economist said.
He estimated another 25 basis point hike for the third quarter and fourth quarter, each, which means the rate would be raised by 75 basis points in total next year. The three raises would put the country's key rate at 2.75 percent.
Unlike the market consensus, Goldman Sachs estimates there won't be a rate hike in the United States next year, according to Kwon. He said it might even be difficult in 2011. "The U.S. economy is estimated to grow around 2 percent, but the economic stimulus policy through the low interest rate will continue," Kwon said.
Korea, meanwhile, would grow by around 5 percent, according to the economist, who was a little more optimistic than the Goldman Sachs report earlier this month. Goldman Sachs had estimated 4.8 percent growth.
He expected the main index KOSPI to rise as high as 2,300 points next year. "The KOSPI is quite under evaluated in terms of price earnings ratio," he said, adding that there could be capital inflow as other developed countries maintain a low interest rate policy.
He especially recommended export leading stocks, such as electronics, auto and steel. Construction and shipping would benefit from the economic recovery, and the financial shares will benefit from an interest rate hike, according to Kwon.
He expected the won/dollar rate to average 1,100 won per greenback next year, with the Korean currency strengthening further to 1,050 won per dollar toward the end of the year.
Regarding the currency revaluation in North Korea, he said it proves that the economy of the Stalinist country is in serious trouble. "North Korean economy is not sustainable because the supply isn't catching up the growing amount of currency in circulation. The currency reform comes as a defensive strategy," he said.
He said that without aggressive reform, the North Korean economy would be in even more serious trouble as people will start losing trust in it. "As everybody tries to hold dollars or renminbi, the North Korean currency will lose the capability to support the regime. The country would be left with fewer options."