Gov’t Mulls Necessary Stability Measures after US Rate Hike open the window of AOD

Write : 2017-03-19


For the second time in three months, the U.S. Federal Reserve raised its key interest rate by point-25 percent.

The measure came as the American economy appears to be on track for robust growth, but the South Korean government and economists are concerned that the U.S. move could be another negative factor for the Korean economy.

As widely anticipated by financial markets, the Federal Open Market Committee (FOMC) of the U.S. central bank on Wednesday raised a target range for an overnight interest rate from between point-50 percent and point-75 percent to between point-75 percent and one percent.

The rate hike reflects growing confidence over the American economy, which expanded for the 92nd consecutive month through February, the third longest growth rally for the world’s largest economy.

While raising the rate for the second time in three months, Federal Reserve Chairwoman Janet Yellen noted the U.S. economy continues to expand at a moderate pace and any further hikes this year would be gradual.

The market expects two more U.S. rate hikes this year and six more rate increases next year or in 2018.

If the Fed raises the rate by point-25 percentage points twice, the U.S. lending cost will be higher than the Bank of Korea’s one-point-25 percent.

Some experts of the Korean economy are concerned that the Fed decision could lead to a cash outflow from the South Korean financial market.

They also worry that the U.S. rate hike could slow down the growth in emerging economies like China, and in turn hurt the Korean economy.

Reflecting the concerns, the South Korean government vowed to take appropriate market stability measures if necessary.

During a macroeconomic finance meeting on Thursday, Vice Finance Minister Choi Sang-mok said the government will stay alert to thoroughly monitor the financial and foreign exchange markets to protect the economy, already riddled with uncertainties at home and abroad.

Regarding the impact of the U.S. rate hike on already record high household debt in South Korea, the government will create an emergency management system to monitor household debt on a weekly basis and continue improving the overall household financing structure.

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