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Stocks, cryptocurrencies rise as US hints at slowdown in rate hikes
By Lee Min-hyung
The Bank of Korea (BOK) is unlikely to make another "big-step" rate hike of 50 basis points during its next rate-setting meeting in August, as fears of an economic slowdown here will deepen in the latter half of the year, experts said Thursday.
They expected the Korean central bank not to take risks with another aggressive rate hike as a reaction to the U.S. Federal Reserve's recent giant step, as the Korean economy will lose momentum for growth gradually from the third quarter despite lingering inflationary fears.
"There stands a slim chance that the BOK will take another big step next month, as Korea's GDP growth will slow down in the third quarter due to sluggish exports and unfavorable external conditions," Korea Capital Market Institute economist Kang Hyun-ju said.
The remark came a day after the Fed increased its key rate by 75 basis points to 2.5 percent. The decision pushed the U.S. interest rate above the BOK's 2.25 percent.
BOK Governor Rhee Chang-yong also underscored the need for "gradual rate hikes" after it took its first-ever big step on July 13.
According to recent announcement by the central bank, Korea's GDP grew by 0.7 percent in the second quarter.
"But the growth pace is widely expected to slow down from the third quarter, and the BOK will take into more consideration the worsening economic conditions here," Kang said.
After the Fed's benchmark rate surpassed the BOK's, fears of a possible foreign capital outflow have been surfacing. But this does not come as an immediate threat to the economy, according to local economists.
"If the Fed's interest rate remains higher than that of the Korean central bank for a long period of time, this will leave the foreign exchange market unstable, as the Korean won will face downward pressure in its value against the U.S. dollar," Yonsei University economist Sung Tae-yoon said.
The Korean won gained ground against the dollar on Thursday, with the won-dollar exchange rate closing at 1,296.1 won, down 17.2 won from the previous day.
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| Federal Reserve Chair Jerome Powell speaks during a press conference at the Federal Reserve Board building in Washington, D.C., July 27. AP-Yonhap |
Stocks and cryptocurrencies staged a relief rally on the same day after Powell remained less hawkish than expected in its future monetary policy direction.
The benchmark KOSPI started with a gain of almost 1 percent, and extended its winning streak this week. The main bourse closed at 2,435.27, up 0.82 percent from a day earlier. The secondary Kosdaq also went on a relief rally by closing with a slight gain of 0.33 percent.
Market analysts shared optimism for a near-term rebound of local stock markets.
"The Fed is unlikely to step up its hawkish gestures with more aggressive rate hikes after the latest FOMC meeting," Kiwoom Securities analyst Han Ji-young said. "Stock markets will be able to alleviate lingering inflationary woes if inflation peaks out in August."
The brokerage house expected the KOSPI to reach as high as 2,600 points next month under the best-case scenario.
Cryptocurrencies also pulled off a strong rally for a similar reason. Bitcoin soared by around 10 percent on Thursday afternoon from the previous trading day, according to data from CoinMarketCap. Ethereum achieved a more powerful rebound with a gain of more than 15 percent at one time on Thursday morning.
Korea's financial authorities said the Fed's latest decision will have a "limited impact" on the local financial market.
"The Fed's decision generally met the market expectations," Financial Minister Choo Kyung-ho said during an emergency economy meeting. "Even if some raise a voice of concern over outflow of foreign capital after the Fed's benchmark rate exceeded the Bank of Korea's, this was not the case in the past. The Korean economy's fundamentals and our proper reaction to global events have a more important influence on the possible inflow and outflow of foreign capital here."
BOK Deputy Governor Lee Seung-heon pledged to strengthen monitoring of any unusual activity in the local foreign exchange market.
"Uncertainties remain in place over the Fed's future monetary policy at a time when the U.S. economy faces high inflationary pressure," Lee said. "If we find any signs of volatility in the market, we will carry out stabilization measures in time."
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