Suspend 7 consecutive increases and keep interest rates on hold
Consider variables such as the tightening of the United States and the reopening of China
Market response to rise, freeze and cut each
Not sure if it’s a sleepy rest stop or a tollgate
When to fasten seat belts in case of an emergency landing
|
The Bank of Korea’s Monetary Policy Committee stopped raising interest rates seven times in a row from April last year to May, July, August, October and November, and then January this year. The MPC’s decision to freeze interest rates is the first in a year since February last year (1.25%). Governor Lee Chang-yong, who took office in April last year, is the first interest rate freeze during his tenure.
Governor Lee’s analogy received more attention than the interest rate freeze itself on the day. In a press conference after the interest rate decision, Governor Lee compared the current situation by saying, “If you’re driving a car and you don’t know which way to go because it’s full of fog, you should stop the car and wait until the fog clears to see whether to go or not.”
The final interest rate of the United States Federal Reserve (February · Fed), the re-opening of China (resumption of economic activity), the domestic real estate market and the economic situation, the flow of international oil prices and the resulting movement of consumer prices, and etc. have all come to an end. because of uncertainty. In fact, since last year was also full of uncertain factors such as Corona 19 and the Russian-Ukrainian war, he has been driving at high speed on foggy roads.
At the same time, Governor Lee emphasized again in his opening remarks that this freezing of interest rates is not the end of the trend of raising interest rates. Governor Lee said, “Last year, the base rate was raised every time because of unusually high inflation. It’s going back to normal,” he emphasized.
|
In summary, since everything is uncertain, we stopped for a while, and in the future, we will judge whether to continue driving or not while watching the fog clearly. The majority of MPs seem to agree with this idea. This is because four out of six members of the Monetary Policy Committee, excluding Governor Lee, have expressed their opinion on freezing interest rates this time, saying that the possibility of taking the final rate should be left to 3.75% open.
There are two members of the Monetary Policy Committee who have a slightly different idea to Governor Lee. One commented on freezing the interest rate this time, but the view is to freeze the interest rate next time and go all the way to 3.50%. It is assumed that this is one of the MPC committee members, Shin Sung-hwan and Joo Sang-young, who gave a frozen minority opinion at the time of the MPC meeting in January. The other is Cho Yoon-jae, a member of the Monetary Policy Committee. Commissioner Cho gave a minority opinion that the interest rate should have been raised to 3.75% from this month.
Market reactions to driving on foggy roads were somewhat mixed. In a way, it is said that the members of the Monetary Policy Committee who decide the interest rate do not see what will happen, but it is natural that it is difficult to know the clear direction of the market.
|
Most of them expect that the base rate of 3.50% will remain as the final rate until the end of the year. Dong-Rak Dong, researcher at Daishin Securities, said, “The BOK’s decision to freeze compliance with the forward guidance presented earlier at a time when the Fed’s course is being re-adjusted actually signals the end of the cycle tighten up.” It was interpreted. Kim Seong-soo, a researcher at Hanwha Investment & Securities, predicted, “Maintaining the benchmark interest rate beyond the neutral rate is also part of a strict tightening. .
The forecasts for increases and cuts came out at the same time. Jeong Won-il, a researcher at Yuanta Securities, predicted, “Because the downside risk of US interest rates continues, we will have to leave open the possibility of raising interest rates once in the second quarter.” On the other hand, Citibank economist Kim Jin-wook said that Governor Lee did not rule out the possibility of a pivot (policy shift) and predicted that “the base rate will be lowered to 2% in the second half of the year, starting with interest rate cuts in August.”
|
Looking for hints from the governor’s comments, the things to watch out for in the future are, of course, inflation and the US Fed’s final interest rate. As expected by the Bank of Korea, it is important to see first if the path to the early 3% at the end of the year after the inflation rate has fallen to the 4% level since March is possible. It will also be important if the US Fed raises the final rate to 5.50% at the top end. When the US-Korea interest rate reversal widens to 200bp (1bp is 0.01 percentage point), we need to see if the exchange rate will bounce and stimulate prices again.
Where will she be after the fog clears? On this trip, the base rate of 3.50% is a resting point for sleepiness, so it is not yet known whether you will speed up again and go the way you were going (tighten up), or you will you reach your destination (final interest rate ) and go out to the toll gate exit. Or, there might be a collision accident on a foggy road, or you could make an emergency landing in an unexpected place. First of all, I hope you all fasten your seat belts and keep your eyes on the road ahead.
