US fiscal tightening to have little impact on Korea: BOK chief

By Bae Hyun-jung
  • Published : Sept 21, 2017 - 18:05
  • Updated : Sept 21, 2017 - 18:05
The central bank said Thursday that the US Federal Reserve’s belt-tightening gesture should have a limited impact on Korea’s economy.

“I do not think that the Fed’s decision will have a big impact on domestic financial markets,” Bank of Korea Gov. Lee Ju-yeol told reporters on the way to his office.

The US central bank on Wednesday announced it will shrink its portfolio of bonds by $10 billion a month starting in October and gradually increase the amount over the next year to $50 billion, signaling at an increased level of fiscal austerity.

Though it left its key interest rate unchanged at 1-1.25 percent, the bank hinted at a hike in December, with the average predicted rate standing at 1.375 percent by year’s end. Korea’s key rate as of late August stayed at 1.25 percent for a 14th straight month.

Bank of Korea Gov. Lee Ju-yeol chairs the monetary policy committee on Aug. 31 to decide the nation‘s key interest rate. (Yonhap)

“The Fed’s latest decision was more or less in line with our expectations,” Lee said.

“There have been some speculations of a possible delay, but the general prediction is that the (Fed’s) rate hike will take place within the year, plausibly in December.”

Lee largely echoed the perspective of Vice Finance Minister Ko Hyoung-kwon, who said the possibility of a dramatic rate hike remains low, though admitting that the Fed’s decision could trigger rate hikes in the long term.

The top monetary official added that it is North Korea’s missile and nuclear programs that are likely to exert heavier influence on South Korea’s financial volatility.

“Bank rate policies henceforth will place higher priority on domestic market situations and North Korean risk factors,” Lee said.

Tensions have escalated on the Korean Peninsula in recent months after the North test-fired an intercontinental ballistic missile and carried out its sixth and most powerful nuclear test last month.

“We should take note of the possibility that the North Korean factor may raise the volatility in the capital market and thus make adjustments in monetary policies with other major countries,” BOK Deputy Gov. Huh Jin-ho said.

By Bae Hyun-jung (