Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Reporter's Notebook No need for excessive reaction to US tapering
U.S. Fed Chairman Jerome Powell appears on a television screen on the floor of the New York Stock Exchange, Nov. 3. The Federal Reserve will begin dialing back the extraordinary economic aid it has provided since the COVID-19 pandemic erupted last year, a response to high inflation that now looks likely to persist longer than it did just a few months ago. AP-Yonhap
By Lee Min-hyung
By Lee Min-hyung
The Korean economy does not have to react excessively to the U.S. Federal Reserve's latest tapering announcement.
This is because the Fed's gradual ending of its yearslong quantitative easing is nothing more than a normalization of monetary policy. The Fed also remained ultra-dovish in its stance over an increase in its key rate, saying that it was “not yet ready” for a benchmark rate hike.
Korean capital markets have been fluctuating in recent months, well before the announcement was made by the U.S. authority. Starting from the second half of 2021, the benchmark KOSPI has been jittery and failed to continue its rally on a widening fear of earlier U.S. tapering and a possible hawkish turn by the Fed.
But with the worries having been alleviated, the Korean economy and capital markets are advised to focus on a COVID-19 recovery and pay less attention to external fear factors.
Bank of Korea (BOK) Governor Lee Ju-yeol spoke of the necessity of an additional rate hike no later than the end of this year, even if the Fed does not take a similar monetary step. The Korean central bank's monetary policy has long been in line with that of the Fed, but Lee underscored that it does not necessarily have to be that way.
Investors are also showing signs of recovering their confidence in the local stock market after the dovish announcement from the Fed.
After the Fed finishes its bond buying program in June 2022, market experts expected it to push for a key rate hike in the same month for a gradual normalization of its monetary policy after it slashed the key rate down to the zero range in March 2020 when the global economy froze in response to the pandemic.
Regardless of the Fed's rate hike timeline, the BOK looks to remain unwavering in its position for the additional rate hike later this month due to rising inflation woes and a widening financial imbalance.
BOK Deputy Governor Park Jong-seok also said the Fed's latest announcement was widely expected and matched market expectations.
This raised the possibility of the BOK continuing its independent rate hike with a focus on domestic economic circumstances.