[Focus] U.S. interest rate cut bodes well for Korea

The U.S. Federal Reserve Board¡¯s decision to cut interest rates is expected to greatly contribute to stabilizing Korea¡¯s foreign exchange and stock markets and boosting its real economy, according to analysts.

It also has brought about prospects for the lowering of call rates in the domestic market, resulting in a big fall in market interest rates.

Affirmative effects on economy:

In its report on the analysis of the impact of the U.S. lowering of interest rates on the Korean economy, the Bank of Korea (BOK) anticipated that foreign investment in Korea would increase in the future, as the Fed¡¯s interest rate cut will widen the interest rate gap between home and abroad. The central bank also predicted that the U.S. step would help reduce a sense of uneasiness in the domestic foreign exchange market and that the won-dollar exchange rate, which recently renewed posted record rises almost every day, would be stabilized.

Quoting materials released by Wharton Econometric Forecasting Associates, the BOK estimated that the interest rate cut would help recover the consumption psychology in the United States and increase the U.S. demand for imports, resulting in an about 0.5 percent rise in Korea¡¯s total exports.

Rumors on call rates abound:

As rumors on the cut in call rates spread rapidly in the domestic bond market Thursday right after the news on the U.S. lowering of interest rates, coupon rates on national and treasury bonds with a maturity of three years plunged by 0.20 percentage point in the morning session.

¡°The prospects are spreading that Asian countries, including Korea, will pull down interest rates to boost their economies, like the United States cut interest rates to prevent a hard landing of its economy,¡± a bond dealer said.

Accordingly, interest has been focused on the results of the Monetary Board meeting to be held Jan. 11.

¡°It is not so easy for the government to lower call rates actually, as the financial system is not still on a right track, and the call rate cut, even if realized, is unlikely to bring about the effects to boost the economy,¡± Park Duck-Bae, head of the financial team of Hana Economic Research Institute, said.

Park Hyun-Jin witness@donga.com