The U.S. Federal Reserve’s decision to start shrinking its asset holdings next month will not immediately push up South Korea’s interest rate, the Korean finance ministry said.
Koh Hyung-kwon, the first vice minister of the Ministry of Strategy and Finance, said at an economic and financial meeting on Thursday that the Fed’s plan to initially reduce its holdings by $10 billion per month from October was “in line with market expectations” and “unlikely to affect the local financial markets in a big way.”
The U.S. central bank announced Wednesday (local time) that it would start paring back its $4.5 trillion balance sheet from October, ending the U.S. government’s quantitative easing stimulus campaign unleashed after the 2008 global financial crisis. It aimed to reduce $10 billion holdings of government bonds and mortgage-related securities next month and raise the amount gradually in the following months.
Koh said the Fed’s move to unwind its balance sheet is expected to lift the U.S. long-term interest rates. “But the rate hike is likely to be gradual given that the monthly tapering volume is small, which would put a cap on upward movement in interest rates in Korea,” Koh added.
On Wednesday the Fed also held the interest rate unchanged at the range between 1 percent and 1.25 percent. But expectation is high that the U.S. central bank would hike the rate later this year after 12 of the 16 Fed members said they anticipated a third rate hike this year.
The composite stock price index Kospi closed Thursday down 0.24 percent at 2,406.50 while the Korean won fell 0.39 percent to 1,132.70 won against the U.S. dollar. Most global currencies have weakened against the greenback following the Fed’s announcement on Wednesday.
By Kim Se-woong
[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]