A series of fiscal stimulus and monetary policy unveiled and implemented by the government and the central bank are apparently moving in the opposite direction to their intentions of boosting the financial markets and the real economy.
Market interest rates have increased although the Bank of Korea opted for a looser monetary policy last May to lend a hand to the government’s extra fiscal spending.
Credit spreads between corporate and government bonds have further widened despite efforts by financial regulators to extend a lifeline to the private financing sector amid growing external uncertainties. The housing market is seeing lackluster transactions despite a number of favorable tax cuts, according to various market data.
They were moving more in line with external macroeconomic conditions rather than with domestic policies, analysts said.
Rates on three-year state bonds increased by 0.31 percentage point to 2.86 percent last Friday since the central bank slashed its key rate two months ago, while interest rates on longer-term fixed-income securities also climbed, data by the Korea Financial Investment Association and the central bank showed.
Korean treasuries with maturities of 20 years declined with rates increased by 0.57 percentage point to 3.59 percent in the same period.
Analysts and policymakers attribute the rate rise to the U.S. Federal Reserve’s plan of cutting back its monetary stimulus as the prospects of the world’s largest economy improved later this year.
BOK Gov. Kim Joong-soo previously forecasted that the unwinding of quantitative easing by advanced economies would pose risks of global interest rates rising.
However, he said the increase rate of Korean bond yields has been relatively smaller than other emerging economies some of which including Indonesia and Brazil recently raised their key rates to curb capital outflow.
Emerging economies have been seeing an exodus of capital as the Fed seeks to scale back its monthly liquidity injection into the bond market, spurring the depreciation of emerging market currencies and stoking inflation.
The Korean central bank noted that the effects of its recent monetary easing would be seen in six months to a year, justifying its policy committee’s decision of a rate freeze over the past two straight months.
Corporate credit spreads over government bonds increased by about 1 basis point over the last week even though the Financial Services Commission implemented emergency measures of supplying 6.4 trillion won to “normalize” corporate financing.
The real estate market, meanwhile, saw its apartment prices drop mostly due to the end of benefits such as purchasing tax cuts and seasonal factors such as monsoon season, according to Real Estate 114.
By Park Hyong-ki (
hkp@heraldcorp.com)
