US Fed, BOK signal rate cut in September

Jul 12, 2024, 05:01 am

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The monetary policies of both South Korea and the United States are expected to shift to easing from tightening./ Source: Getty Images Bank

AsiaToday reporter Lee Choong-jae

“The situation is now ripe to change lanes and prepare to shift direction (for monetary policy) at the appropriate time.”

Bank of Korea (BOK) Governor Rhee Chang-yong made the remarks following the central bank’s rate freeze at 3.5 percent on Thursday, hinting at the BOK’s future course of action. Rhee’s remarks can be seen as a sign that the central bank will change the monetary policy to reviving domestic consumption from stabilizing prices. The market expects that the BOK would cut interest rates alongside the United States in September at the earliest.

Analysts say that while the central bank has been focusing on curbing prices by keeping interest rates unchanged at 3.50 percent for the 18th straight month, the longest streak of unchanged interest rates since a 25-basis-point hike in January of last year, it has now begun the process of shifting its monetary policy to easing to revive frozen domestic consumption.

The U.S. Federal Reserve is also signaling a rate cut in September, saying, “Cutting interest rates too late or too little could unduly weaken economic activity and employment.” As the Fed, which sets the global economic standard, changes its monetary policy direction, South Korea is also moving toward changes.

Above all, the growing number of people suffering from high interest rates in various parts of the Korean economy is pressing the country to change its monetary policy. Exports in the first half of this year jumped 9.1 percent from the same period last year, and despite the boom, domestic consumption has not recovered, and has been hardly able to find a way out for growth.

Analysts say the market is sensing a “great rotation,” in which funds move from safe assets to stocks in expectations for a cut in the benchmark interest rate. According to the Korea Financial Investment Association, the balance of asset management accounts at securities companies stood at 85.4 trillion won as of Monday, up more than 10 percent from the beginning of the year. In the U.S. stock market, both the S&P 500 and Nasdaq hit fresh records following the Fed’s remarks on a key interest rate cut.

“The Fed will start its first cut in September and lower its key interest rate twice within this year, and the Bank of Korea will follow in October,” Ahn Ye-ha, an analyst at Kiwoom Securities, said.

#US Fed #BOK #rate cut