Trading of Korean stocks, bonds and currency could become volatile as the U.S. Federal Open Market Committee is expected to lean toward monetary stimulus cuts due to improved data in the world’s largest economy, analysts said Monday.
Asia’s fourth-largest economy will need to brace for further possible foreign selloffs as the FOMC holds meeting from Dec. 17-18. Many economists believe that FOMC members may vote for an early start of its quantitative easing tapering.
The global markets are expected to “increasingly stay alert” against the possibility of the FOMC deciding to start tapering soon, said a report by a team of fixed-income strategists at Woori Investment & Securities.
This is due to improved employment data in the U.S., it added, forecasting that interest rates on 10-year U.S. Treasuries would hover at around 2.8-2.9 percent this month.
The U.S. jobless rate for November was recorded at 7 percent. This was lower than initial expectations of 7.2 percent. The unemployment rate is now at its lowest since November 2008, before President Barack Obama took office.
“The improved job data is enough to say that the world economy will be heading for recovery in 2014, and will lead to a greater possibility of both Korean exports and consumption making further recoveries,” said Lee Sang-jae, an economist at Hyundai Securities.
“However, on the flip side, the U.S. could start tapering early.”
Almost 50 percent of economists surveyed by Bloomberg said that a decision by the FOMC to scale back its stimulus is likely to be reached during its meeting.
In November, only 17 percent indicated that the FOMC could reach such a decision.
Although the Fed did not give specific details regarding the timeline or the scale of its impending monetary cuts, the Federal Reserve’s next chief, Janet Yellen, said that its monthly bond-buying program could not continue “indefinitely.”
She said that there were costs associated with its unorthodox monetary policy.
Korea’s Deputy Prime Minister and Finance Minister Hyun Oh-seok said that the government would take the U.S. quantitative easing into account when implementing its economic policies.
He told the press that its goal was not to boost various economic indicators such as the current account, consumer sentiment and employment.
Its priority is to help boost the livelihoods of the people through its economic policies, he said, adding that it will exert efforts to improve morale in the private sector.
Bank of Korea Governor Kim Choong-soo said that Korea’s economy can withstand quantitative easing tapering as its sound macro-prudential measures will be able to cushion the country from increased capital-flow volatility.
By Park Hyong-ki (
hkp@heraldcorp.com)
