On Wednesday, the Federal Reserve of the United States finally lifted its key interest rates which showed that the U.S has higher benchmark rate than Korea for the first time after the 2007 financial crisis.
During the monetary policy meeting of the Fed, led by the new Chief Jerome Powell, the rate increased by 0.25 percentage points from 1.50 to 1.75 percent. Hence, the U.S. benchmark rate rose above Korea’s base rate at 1.5 percent after 10 years and seven months.
According to the Governor of the Bank of Korea, Lee Ju-yeol the decision coincided with the expectations which brought slight impact against the Korean market. Lee also expected some signs of fear within the local financial market yesterday.
Kospi closed at 2, 484.97 on Wednesday and started the Thursday's session at 2, 496.68. The composite index ended the day at 2,496.02 following a jump at 2, 508.71 during the session.
The crucial part is the associated impact from the U.S rate that surpasses the local rate was the foreign capital outflow of the Korean market, however, local experts believe that it has low chance to happen.
The Korea International Trade Association (KITA) made it clear that there was no evident outflow of foreign capital in 2017 after the three-time price hike of the Fed.
KB Securities’ strategist Kim Sang-hoon assert that previous capital outflow from foreign countries happened when the rates reversal seems insufficient to create a significant impact on the domestic market.
Moreover, the Fed was able to retain its original forecast to increase rate three times in 2018 and its first hike took place on Wednesday. While its estimate for 2019 was changed from two to three raises and further present its projections in 2020 with two rate increase.
As the Fed provide hints about the increase in the rate hike momentum, this resulted to predictions that the central bank of Korea might raise its rate eventually. The BOK is scheduled to have a monetary policy meeting in May upon the beginning of Lee’s second term as the governor of the BOK on April 1.
