By Park Hyong-ki
The Bank of Korea (BOK) is once again stuck in the middle of the United States Federal Reserve's interest rate hike and a domestic slowdown, analysts said Thursday.
As the market had expected, the Fed raised its key rate to 2.25 percent to 2.5 percent.
This further widened the gap with the BOK, which increased its rate to 1.75 percent in November.
The Fed is expected to raise its rate twice in 2019, depending on employment, inflation and growth data
But it said it will also look at "readings on global economic and financial developments, and assess their implications for the economic outlook."
The market seemed a bit divided over this particular statement, questioning how much the Fed has become more or less dovish than expected.
On the way to his office Thursday, Bank of Korea Governor Lee Ju-yeol told reporters that the hike was expected and the central bank will just have to see what moves the Fed will make in 2019.
The rate gap is not an urgent issue that poses a problem to the economy, he added.
"Should the Fed slow down its policy normalization, it will have less of a negative impact on the global economy. And it will give the rest of the world some breathing space," he said.
The Ministry of Economy and Finance said there haven't been any signs of foreign capital exiting the market amid the Fed hike.
But it added in a statement that it will deploy a contingency measure, if necessary.
Analysts say the BOK can't really do anything at the moment with its monetary policy.
It is not in a position to raise its rate to catch up with the Fed's 2.5 percent as the economy is slowing.
The BOK should be able to lower the rate in the face of slower growth, but it can't because of the Fed hikes.
"The central bank can't do much going forward," said Kim Doo-un, an economist at KB Securities.
"So, the only other so-called contingency plan would have to come from the finance ministry with an expansionary fiscal policy."
Given the Fed has issued a statement in a "softer tone" following the hike, the economist does not expect the government to go into emergency mode.
Kim pointed to the Fed's remarks such as "risks are roughly balanced, but will continue to monitor global developments."
This indicates the U.S. central bank will review domestic and global numbers before making a move with its monetary policy.
This will make it more data dependent, as well as a bit more cautious toward the implications of the ongoing trade conflict with China for U.S. jobs, inflation and growth amid a slowdown outlook, the economist added.
The Fed rate hike to 2.5 percent marked the fourth increase in 2018.
It began normalizing its policy in December 2015.
The BOK raised its rate once both in 2018 and 2019 only as a means to follow the Fed's hikes and increase financial risk management.
 |
As the market had expected, the Fed raised its key rate to 2.25 percent to 2.5 percent.
This further widened the gap with the BOK, which increased its rate to 1.75 percent in November.
The Fed is expected to raise its rate twice in 2019, depending on employment, inflation and growth data
But it said it will also look at "readings on global economic and financial developments, and assess their implications for the economic outlook."
The market seemed a bit divided over this particular statement, questioning how much the Fed has become more or less dovish than expected.
 |
| Bank of Korea Governor Lee Ju-yeol talks about the U.S. Fed rate hike before heading to his office in Seoul, Thursday. Yonhap |
The rate gap is not an urgent issue that poses a problem to the economy, he added.
"Should the Fed slow down its policy normalization, it will have less of a negative impact on the global economy. And it will give the rest of the world some breathing space," he said.
The Ministry of Economy and Finance said there haven't been any signs of foreign capital exiting the market amid the Fed hike.
But it added in a statement that it will deploy a contingency measure, if necessary.
 |
| gettyimagesbank |
Analysts say the BOK can't really do anything at the moment with its monetary policy.
It is not in a position to raise its rate to catch up with the Fed's 2.5 percent as the economy is slowing.
The BOK should be able to lower the rate in the face of slower growth, but it can't because of the Fed hikes.
"The central bank can't do much going forward," said Kim Doo-un, an economist at KB Securities.
"So, the only other so-called contingency plan would have to come from the finance ministry with an expansionary fiscal policy."
Given the Fed has issued a statement in a "softer tone" following the hike, the economist does not expect the government to go into emergency mode.
Kim pointed to the Fed's remarks such as "risks are roughly balanced, but will continue to monitor global developments."
This indicates the U.S. central bank will review domestic and global numbers before making a move with its monetary policy.
This will make it more data dependent, as well as a bit more cautious toward the implications of the ongoing trade conflict with China for U.S. jobs, inflation and growth amid a slowdown outlook, the economist added.
The Fed rate hike to 2.5 percent marked the fourth increase in 2018.
It began normalizing its policy in December 2015.
The BOK raised its rate once both in 2018 and 2019 only as a means to follow the Fed's hikes and increase financial risk management.
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