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Rising interest rates, Omicron fears dent investors' risk appetite
By Lee Min-hyung
The ample market liquidity, created as a firewall against the COVID-19 pandemic, is flowing into safe assets including bank deposit accounts, as a variant of the virus that is potentially resistant to current vaccines is denting appetite for risk amid interest rate hikes by central banks.
Data from the nation's top five commercial banks showed that more households have opted to deposit their money with them after the Bank of Korea (BOK) increased its key interest rate to 1 percent last week
The combined balance in savings accounts at KB, Shinhan, Hana, Woori and NongHyup reached 654.79 trillion won, Nov. 26, a day after the central bank raised the benchmark rate. This was an increase of 992.6 billion won from the previous day.
In addition there was a steep decrease in their customers' non-collateral loan balances. The lenders also saw a fall of 91.6 billion won in their collateral loan balances during the same period. This indicates customers are paying down their debt to reduce risks from a rapid increase in rate hikes.
The emergence of the new COVID-19 variant is escalating uncertainty on the markets, reducing investment sentiment which has prevailed for more than a year after the outbreak of the coronavirus pandemic early last year.
Local stock markets tumbled for three consecutive trading days after the Omicron variant started raising alarm bells on the global financial market last week. The benchmark KOSPI closed with a loss of 73.23 points, or 2.42 percent, Tuesday. The secondary Kosdaq also plunged by 2.7 percent on a selling spree by foreign and institutional investors.
This lead to investors piling up more cash and remaining less aggressive on investing in stock or the housing market here.
Banks are also moving to increase their deposit interest rates in tandem with the key rate hike, which attracts more people to transfer money into their accounts, rather than taking out more loans to continue engaging in a buying spree of apartments and shares.
Following the rate hike, the five lenders decided to increase deposit interest rates by as much as 0.4 percentage points. Mid-tier commercial banks ― such as DGB Daegu Bank, BNK Kyongnam Bank and BNK Busan Bank ― followed suit. Starting Tuesday, BNK Busan Bank increased its rate by 0.5 percentage points.
If fear of the Omicron variant does not escalate into a worrying-level, the chances are the BOK will deliver another rate hike sometime in January or February 2022, in which case customers' preference for safe assets will remain longer than expected.
Economists say it remains to be seen how long this will continue, as no one can say for sure whether the Omicron mutation will trigger another global crisis.
Hi Investment & Securities economist Park Sang-hyun said the global preference for safe assets may intensify if the spread of the Omicron variant becomes more serious.
"It will depend on how seriously the Omicron variant spreads down the road," he said. "If the living with the coronavirus plan is threatened by the new variant, chances are the dollar will gain a lot of ground."
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