The U.S. Federal Reserve (Fed) took the ‘baby step’ of raising the base rate by 0.25 percentage point, but suggested in a statement that it would stop further raising the base rate. As a result, analysts say that the Monetary Policy Committee of the Bank of Korea, which was announced on the 25th, put more weight on freezing the base rate.
At the regular meeting of the Federal Open Market Committee (FOMC) held on the 3rd (local time), the Fed raised the base rate by 0.25 percentage point from the previous 4.75-5.0% to 5.0-5.25%. Accordingly, the Fed has raised interest rates 10 times in a row since March last year, raising the US benchmark interest rate to its highest level since August 2007. The interest rate gap with Korea widened to a record high of 1.75 percentage points.
The FOMC decided to raise interest rates by ‘unanimous vote’ on the same day and hinted at the end of the rate hike cycle through a statement. In this statement, the FOMC deleted the phrase “additional policy strengthening (an interest rate hike) is expected to be appropriate,” which was included at the time in March.
Fed Chairman Jerome Powell said at a press conference following the FOMC that the deleted phrase was “quite meaningful” and that, “given the uncertain headwinds and accumulated monetary tightening, future policy will depend on how the situation develops.” .
The Bank of Korea kept its base rate unchanged at 3.50% in February and April at the Monetary Policy Committee meeting. The market interprets this as the end of the domestic interest rate hike cycle. This is because inflation (inflation) pressure is gradually decreasing with the BOK’s observation point, and consumer prices have also fallen to the 3% level.
In addition, as signs of a downturn in the economy are becoming clearer, including the consecutive current account deficit in January and February, it is analyzed that the possibility that the BOK will raise the base rate again is not high.
Joo Won, head of the Hyundai Research Institute, predicted a rate freeze, saying, “The consumer price index has also come down to the 3 percent level, and concerns about an economic recession are emerging.”
According to the National Statistical Office, consumer prices rose 3.7 percent last month compared to the same month last year, falling to the 3 percent level for the first time in 14 months since February last year. The consumer price increase rate, which is mainly compared with the same month last year in consideration of seasonal factors, peaked in July of last year (6.3%).
The current account deficit in February was 520 million dollars (approximately 686.1 billion won). However, the deficit in February decreased by $3.69 billion from the record high of $4.21 billion in January.
Kim Hyeon-wook, a professor at the Korea Development Institute (KDI) Graduate School of International Policy Studies, said, “We will freeze interest rates at the end of May.” We need to prioritize this while thinking about the economic trend,” he said.
However, Bank of Korea Governor Lee Chang-yong had an interview with CNBC prior to attending the annual meeting of the Asian Development Bank (ADB) held at the Songdo Convensia in Yeonsu-gu, Incheon the day before, and drew a line saying, “It is premature to pivot (monetary policy transition) at this point.”
Regarding the possibility of a rate cut within the year, he said, “It depends on the data, and we also have to look at the monetary policy of other major countries.”
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.