U.S. rate hike "highly" likely in December: BOK chief

The head of South Korea's central bank said Tuesday that the United States may raise its policy rate before the year's end, while noting such a move may create financial instabilities in newly emerging economies that may possibly lead to a global crisis.

"Despite the recent terror attacks in Paris, the possibility of a (U.S.) rate hike in December currently remains very high," Bank of Korea (BOK) Gov. Lee Ju-yeol said at a breakfast meeting with members of the Korea Chamber of Commerce and Industry.

Lee's remarks come amid growing views that the U.S. may be unable to start hiking its key rate this year due to what many have called disappointing U.S. economic indicators, including a poorer-than-expected employment rate.

The BOK chief asserted the U.S. Federal Reserve may see what he called "excessive risk-taking actions" in the market as a problem caused by a prolonged period of easy-money policies, forcing it to make hike rates.

Such a move, however, may cause a massive outflow of foreign capital from emerging economies, creating serious financial instabilities in such countries, he said.

"Should a U.S. rate hike take place simultaneously with China's economic slowdown, instabilities in the global financial market may increase significantly," Lee said while speaking to reporters after the breakfast meeting.

The central bank chief said emerging economy countries were already facing imminent dangers of a financial meltdown, adding he expected to see such a development in the very near future.

"Considering the financial conditions of some weak newly emerging countries, the possibility of global financial imbalances are already quite high," he said.

Lee earlier said his country will be less affected by a U.S. rate hike than other emerging economy countries, citing South Korea's strong economic fundamentals.

Still, he insisted the U.S. must proceed with its rate hike cautiously and gradually, apparently to help minimize its adverse impact on developing economies.

"In the past, the U.S. rate hikes showed a pattern of steady increases until they reached a target rate, and I expect them to gradually raise their rates this time around," Lee said. (Yonhap)