Impact of ECB zero rate is slight

The Korean financial market remained calm on Friday despite an unexpected move by the European Central Bank (ECB) to further lower its interest rate to zero.

The Korean government, which immediately monitored the market response Friday morning, said the impact here was minimal.

“It seems that the influence of the ECB’s action will be limited on our financial market as well as on the economy,” Deputy Finance Minister Lee Chan-woo said. “We expect the monetary policy from Europe to be effective [more than the minus interest rate move by the Japanese central bank]. But as the situation can change any moment, we will continue to monitor the situation closely.”

The Seoul market closed at 1,971.41, which only added 2.08 points, or 0.11 percent, compared to Thursday’s close.

ECB President Mario Draghi on Thursday announced growth-boosting measures that were more aggressive than expected.

They include lowering the main interest rate to an all-time low from 0.05 percent to a flat zero, expanding the quantitative easing program targeting purchasing assets and further lowering the negative deposit interest rate.

“The ECB came up with a loose monetary policy that exceeded the market’s expectation,” said Choi Kwang-hyeok, an analyst at eBEST Investment and Securities.

“With such moves, the quantitative easing program has gone from 60 billion euros [$67 billion] every month to 80 billion euros starting in April.

“The recent sharp drop in consumer spending and worsening confidence in the economy seem to have affected the decision of the ECB.”

The ECB’s negative outlook, where it lowered the eurozone’s growth outlook from 1.7 percent to 1.4 percent and inflation target from 1 percent to 0.1 percent, was one of the key factors that contributed to bringing down the European stock market, despite its unprecedented stimulus programs.

European markets were shaken as the German stock market fell 2.3 percent, while the markets in London and Paris lost more than 1.7 percent each.

Korean market analysts said that despite the ECB’s disappointing outlook, the lowered interest rates and expanded quantitative easing contributed to a continuing stock purchase by foreign investors.

While foreign investors’ net purchase on the Kospi shrank from Thursday, they continued their purchase for a second consecutive day, whereas institutional and retail investors were net sellers.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]