Korea faces challenges as U.S. rate hikes come to likely end

2023.12.15 12:55:01 | 2023.12.15 13:20:40

U.S. Federal Reserve Chairman Jerome Powell speaks during a news conference following the two-day FOMC policy meeting. [Photo by Reuters / Yonhap]이미지 확대

U.S. Federal Reserve Chairman Jerome Powell speaks during a news conference following the two-day FOMC policy meeting. [Photo by Reuters / Yonhap]



Officials from the Federal Reserve left interest rates unchanged in their latest and final policy decision of 2023, with the U.S. central bank announcing it will cut the rates three times in 2024. Chair Jerome Powell declared the end of the Fed‘s tightening of monetary policy following its 11 rate hikes since March 2022.

“We believe that our policy rate is likely at or near its peak for this tightening cycle,” he said in a press conference following the December meeting of the Federal Open Market Committee (FOMC). In response, the market described the decision as a gift for the upcoming holidays.

But the gift might not be an immediate solution to the challenges facing the Korean economy. Korea has long suffered from historic inflation, which requires sufficient time for the economy to achieve the target inflation of 2 percent, and Bank of Korea Governor Rhee Chang-yong has also said that inflation could take six months or even longer to return to 2 percent. As the risk of economic recession looms, Korea will find it challenging to maintain a sustainable growth in exports despite a recent boost in chip exports.

Soaring household debt is a big concern for Korean financial regulators, with the outstanding balance of debt among commercial lenders hitting an all-time high of 1092 trillion won ($843.6 billion) as of the end of November 2023. Risks associated with project financing loans also need to be addressed.

From left FSS Governor Lee Bok-hyun, BOK Governor Rhee Chang-yong, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, and FSC Chairman Kim Joo-hyun [Photo by Yonhap]이미지 확대

From left FSS Governor Lee Bok-hyun, BOK Governor Rhee Chang-yong, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, and FSC Chairman Kim Joo-hyun [Photo by Yonhap]



In response to these uncertain developments, the country’s top four financial officials, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, BOK Governor Rhee Chang-yong, Financial Services Commission (FSC) Chairman Kim Joo-hyun, and Financial Supervisory Service (FSS) Governor Lee Bok-hyun, vowed to keep the market stable during their latest meeting held on Thursday.

Monetary shifts from major economies such as the U.S. highlight a more pivotal role that the Korean financial authorities must play in protecting the economy from any ramifications.

They need to explore the perfect timing to begin rate cuts by keeping their eyes on the global financial markets while implementing measures to prevent corporate debt and PF insolvency from reaching their thresholds.

They also need to stay cautious about potential consequences of rate cuts, such as housing bubbles, caused by lower borrowing costs. A well-balanced policy approach, one that considers both domestic and international economic factors, will help them keep stability in financial markets and address the growing concern of escalating household debt.

By Editorial Team

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