Attention on Bank of Korea Monetary Policy Committee on 27th amid US Tapering Talks

Bank of Korea Likely to Raise Growth Rate to High 3% Range on the 27th

Ijuyeol, Governor of the Bank of Korea [Photo by Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] The U.S. Federal Reserve (Fed) reportedly mentioned the possibility of tapering (reducing asset purchases) for the first time during the Federal Open Market Committee (FOMC) regular meeting, raising expectations that the tightening of monetary policy could accelerate not only in the U.S. but also in South Korea. If the U.S. shifts to a tightening stance, market interest rates such as government bond yields will rise first, and as long-term rates increase, central banks will have no choice but to respond by raising benchmark interest rates to curb them.

On the 19th (local time), after the Fed’s FOMC minutes were released, the U.S. 10-year Treasury yield surged from 1.62% to around 1.69%. Although it slightly eased afterward, it still fluctuates between 1.67% and 1.68%. The South Korean 10-year government bond yield was trading at 2.140% as of 9:40 a.m. on the 20th, up 2.2 basis points (1bp = 0.01 percentage points) from the previous day. Since the COVID-19 pandemic, South Korea’s government bond yields have shown a synchronized trend with the U.S., so an upward trend is expected for the time being. Along with the rise in bond yields, the value of the U.S. dollar has also increased, with the won-dollar exchange rate trading at 1,132.2 won, up 1.7 won as of 10 a.m.

Notably, the recent FOMC minutes were written before the April inflation data was released, causing market concerns that the Fed may quickly adjust its policy in upcoming meetings. If the rapid inflation surge is also taken into account, the pace of monetary tightening could accelerate further.

Accordingly, attention is focused on the Bank of Korea’s Monetary Policy Committee regular meeting scheduled for the 27th. Although the Bank of Korea is expected to keep the benchmark interest rate unchanged, citing ongoing shocks such as employment and face-to-face services, market participants are closely watching what message Governor Lee Ju-yeol will deliver, given the Fed’s mention of possible tightening.

The Bank of Korea has maintained the historically low benchmark interest rate for a year, having lowered it from 1.25% to 0.75% at an emergency monetary policy meeting on March 16 last year, and then from 0.75% to 0.50% in May. Recently, economic indicators have been normalizing, and there are growing calls for an early rate hike due to side effects such as a surge in asset markets. The Bank of Korea is also expected to revise upward its economic growth forecast for this year at the upcoming Monetary Policy Committee meeting. Compared to February’s forecast (3.0%), the U.S. economic recovery is accelerating, and exports are increasing faster than expected. Experts anticipate that the Bank of Korea will present a growth forecast in the high 3% range.

This content was produced with the assistance of AI translation services.