Yoon Ja-young is in charge of articles translated by a generative AI system and edited by The Korea Times. She is interested in improving the newspaper through AI.
'US key rate hike may have limited effect on Korea'
By Yoon Ja-young
Vice Minister Joo Hyung-hwan
By Yoon Ja-young
The U.S. Federal Reserve’s move to raise its key rate in the second half of the year is expected to have limited impact on the Korean economy, the vice finance minister said Thursday.
He said the government would closely monitor how U.S. rate decisions affect the Korean economy.
“With the U.S. key rate hike imminent and the risks from Greece continuing, conditions can change rapidly anytime in the global financial market,” Vice Strategy and Finance Minister Joo Hyung-hwan said at the macro-economy and finance meeting.
The U.S. Federal Open Market Committee (FOMC) froze the key rate at its June meeting, as the market expected.
It also lowered the economic growth outlook, but maintained guidance regarding the key rate hike. Hence, the market expects the United States to start raising the key rate in the latter half of the year.
Even so, there would not be a huge impact on the Korean economy when considering its external soundness and macroeconomic indices, Joo said, adding that there would be both positive and negative effects.
“For instance, the U.S. key rate hike can lead to the outflow of foreign funds, but the U.S. recovery also can help Korea’s exports,” the vice minister said.
He said the government would thoroughly analyze how the U.S. key rate hike would affect the market and companies.
“There will be preemptive and market-friendly corporate restructuring to get prepared for the rising interest rates, and household debt will also be stably managed through ‘qualitative restructuring,’” he said.
The vice minister said macroeconomic policy would continue its expansionary mode to maintain the growth momentum and enhance economic vitality.
He also said the government would minimize the negative impact of Middle East Respiratory Syndrome (MERS), supporting damaged industries and regions with funding.
The country has been seeing signs of contracting consumption, with sales decreasing at department stores and retail outlets. The service sector, especially the tourism and leisure industries, has also been hit hard by MERS, with an increasing number of foreigners canceling trips to Korea.
So Jae-yong, an economist at Hana Daetoo Investment and Securities, said the FOMC lowered its economic growth outlook steeper than expected. “It seems to be somewhat cautious about the future economy,” he said. “The United States will raise the key rate this year, but it will take a careful approach.”
He said that as the market was aware the key rate will be raised in the third quarter, it will not react as sensitively as it did in 2013 when the United States started tapering.