Korean markets shrug off another big Fed step placing U.S. rates above Korea’s

2022.07.28 16:04:56 | 2022.07.28 16:13:12

[Graphics by Song Ji-yoon]이미지 확대

[Graphics by Song Ji-yoon]

South Korean markets shrugged off the back-to-back 75-basis-point hike in U.S. base rate that placed U.S. rates above Korea’s as they have already factored in speedy tightening in the U.S. and Korea.

After a series of big steps, the U.S. Fed fund rate range is at 2.25 percent to 2.50 percent, placing the median above Korea’s 2.25 percent after Korea’s own unprecedented 50-basis raise earlier this month.

Markets turned positive on easing in uncertainties and anticipation of slowing in U.S. tightening for a breather from galloping moves in recent months.

The main Kospi finished 0.82 percent higher at 2,435.27, and the secondary Kosdaq up 0.33 percent at 798.34 Thursday as foreigners returned in full force – buying 406.7 billion won worth on the Kospi.

이미지 확대
The U.S. dollar eased to 1,296.1 won, below 1,300 won for the first time in 15 trading sessions.

Bond prices fell, with the yield on the three-year government bond rising 1.7 basis points to 3.107 and 10-year yield 4.4 basis points to 3.165 percent. Bond prices and yield move in the opposite direction.

Minister of Economy and Finance Choo Kyung-ho found the Fed action has had limited impact on the Korean financial markets as it was widely expected.

If the stability continues, the BOK won’t likely deliver another 50-basis hike in the August meeting.

BOK Governor Rhee Chang-yong after endorsing a rare raise in half of a percentage point for July indicated the bank would continue with rate increases but in moderate pace.

He agreed to the market consensus of the base rate going to 2.75 to 3.00 percent by the end of the year of being reasonable, but added actions would hinge on economic data and overseas capital movements. BOK has only three meetings left for the year – in August, October, and November.

BOK Governor Rhee Chang-yong. [Photo by Bank of Korea]이미지 확대

BOK Governor Rhee Chang-yong. [Photo by Bank of Korea]

According to BOK’s guidance on for the second-quarter GDP on Tuesday, the Korean economy is projected to have added 0.7 percent from the previous quarter.

Consumer expectation for the inflation rate in the following year, however, hit record-high 4.7 percent in July, which can further fuel inflation already running at 6 percent.

“The BOK won’t likely take another big step, but inflation data for Korea and U.S. could be important factors,” said Jun Sung-in, professor at School of Economics Hongik University.

BOK’s next rate-setting meeting is on Aug. 25.

By Pulse

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]