U.S. Fed Rate Cut Drives Domestic Stock Market Rebound

The Federal Open Market Committee of the U.S. Federal Reserve Board lowered the federal funds rate by 75 basis points to 2.25 percent, on Tuesday. It also cut the discount rate, the interest rate that a bank is charged to borrow short-term funds directly from the central bank, by 75 basis points to 2.50 percent.

By doing so, the federal funds rate hit its lowest level since December 2004. Given that consumer prices are expected to increase by more than 2.25 percent in the U.S. this year, the U.S. now effectively faces an era of “minus interest rates.”

The Dow Jones Industrial Average rose 420.41 points (3.51 percent) to close at 12,392.66, on Tuesday, recording the largest daily increment since July 2002.

South Korea’s benchmark KOSPI surpassed the 1,600 mark in three days. It surged 33.48 points (2.11 percent) to close at 1,622.33, yesterday, boosted by foreign investors’ net buying, which amounted to 500 billion won. From the beginning of this year to Mar. 18, their net selling (the amount of selling minus buying) reached 13.8 trillion won.

The won-dollar exchange rate fell 20.10 won over two days to 1,009.1, yesterday, since the government intervened in the financial market on Tuesday.

kong@donga.com ssoo@donga.com