Korea Decouples From US Economy
By Kim Jae-won
Staff Reporter
A noted global economist said that Korea is decoupling from advanced economies, with its economy sustaining robust growth, suggesting that the central bank raises its key rate to curb the build-up of inflationary pressure.
``Korea will see stronger growth than expected for this year and next year. Economic growth in Korea has decoupled from western countries ― it no longer relies on them,'' HSBC senior Asia economist Frederic Neumann, said at a press conference in Seoul, Thursday.
He stressed that it was time for Korea to raise its key interest rate as the country is starting to experience inflation, saying ``inflationary pressure is already in the pipeline.'' The central bank kept the rate at its lowest level of 2 percent for the 12th straight month on the same day.
``It (Bank of Korea) needs to tighten monetary policy early. I suggest raising it 100 basis points until the end of this year. Korea's neutral key rate is four percent. So 100 basis points will not be enough to cool down the economy. Even three percent will be too low,'' he said.
However, he cautioned that the central bank should control the pace of credit tightening as too a drastic rate hike could put upward pressure on the local currency.
``If the BOK raises key rate to four percent, the Korean won will appreciate. That's why I suggest a 100 basis points rate hike this year," he said.
The veteran economist recommended Asian countries, including Korea, manage their monetary policies independently.
``Monetary policy needs to decouple from western countries. Asia needs to have an independent monetary policy.''
Neumann said emerging markets were growing fast, so the nation will benefit from them.
``Korea will be one of the biggest beneficiaries of the fast growing emerging markets. For example, I was surprised to see the country grab the bid for nuclear power plants in the United Arab Emirates.''