Bank of Korea reassured by Fed comments after rate increase
The Bank of Korea is interpreting comments from Federal Reserve Chairman Jerome Powell on Wednesday as an indication that rates in the United States will rise steadily and not too aggressively.
"Powell's remarks were rather dovish," said Lee Seung-heon, a senior deputy governor at Bank of Korea, in a meeting with the central bank officials following the Fed meeting.
He added that the half-point increase was within expectations, but warned that further increases could add uncertainties to the financial markets.
On Wednesday, the Fed increased its target for the federal funds rate to a range of 0.75 percent to 1.0 percent, from a range of 0.25 percent to 0.50 percent. It increased rates 25 basis points in March.
Powell said after the announcement that a higher 75 basis point increase had not been considered and that it is not on the table for next few meetings, though he did acknowledge that inflation is high.
U.S. inflation hit 8.5 percent in March, the highest since 1981. In Korea, inflation was 4.8 percent in April, the fastest pace in more than 13 years.
At the meeting led by Lee, central bank officials highlighted the need to strengthen the monitoring of external risks and their impacts on Korea's financial and foreign exchange markets.
They pointed to the war between Ukraine and Russia and the sluggish economic growth in China.
At a confirmation hearing last month, Bank of Korea Governor Rhee Chang-yong said that Korea's rate increases don't have to be as rapid as the Fed's because the U.S. has higher inflation and a sturdier economy.
The Bank of Korea voted to increase rates a quarter point in April. It was the second increase of the base rate this year and the fourth in this round of tightening, which began in August last year.
The central bank's next monetary policy board meeting is scheduled to take place on May 26.
The Bank of Korea is forecast to up the base rate by 25 basis points in May and again in August, according to Lee Seung-hoon, an analyst at Meritz Securities, in a report on Wednesday.
"Considering the sluggish domestic GDP, it is less likely for the central bank to increase the rate beyond a neutral level," which is seen as 2 percent, Lee said.
BY JIN MIN-JI [email@example.com]