US Lowest Interest Rate in 41 Years

After US decided to lower the rate of interest, Korea decided to freeze the current rate of interest. There is much attention whether this would lead to revival of US consumption which again would lead to increase of Korean exports. And also whether it would affect the stock markets of both countries.

On November 7th, the Monetary Board of the Bank of Korea has decided to maintain the Call rate to current 4.25%.

Before that on November 6th (local time), the US Federal Reserve Board (FRB) convened a Federal Open Market Committee (FOMC) and lowered the Federal Reserve rate of interest to 1.25% from 1.75%.

In regard to freeze of Call rate, Mr. Park Seoung, the President of Bank of Korea says, "Domestic economy is growing steadily but the world economy is in chaos. We must watch how the economic deterioration in developed countries such as US will affect the Korean export and investment on plants and equipment."

He means that the stagnation of world economy could hurt the Korean export and investment on plants and equipment, which would also, leads to downfall of domestic economy.

The lowering of interest rate by the US FRB could be interpreted as a boost to corporate investment and consumption expenditure in process would stimulate the economy. Since last year the US has lowered the rate of interest for dozen times from 6.5% to 1.25% recently.

Today, the Korean composite stock index showed a decrease of 1.29p (0.19%) to 681.27. KOSDAQ has also dropped to 0.29p (0.59%) to 48.66. No particular effects were seen in the market.

However in New York stock exchange, due to unexpected drop in the rate of interest, there were conflicting interpretations of it. △ Worsen economic situation, and △measures to stimulate economy are two conflicting interpretation. For a while there was a sudden drop in stock prices and finally the market close with a rising trajectory. NASDAQ has increase 17.880p (1.27%) to 1,418.97 Dow Jones stock index showed increase of 93.43p (1.08%) to 8,771.70

konihong@donga.com mhjh22@donga.com