Stocks and won rally as Fed chair signals conditional dovishness

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Stocks and won rally as Fed chair signals conditional dovishness

Published: 01 Dec. 2022, 17:21 Updated: 01 Dec. 2022, 19:37

Electronic display boards at Hana Bank in central Seoul shows the Kospi closing at 2,479.84 points and the won at 1,299.70 to the dollar on Thursday. [YONHAP]

Stocks and the won recovered to levels not seen in months on Thursday after the Federal Reserve Chairman signaled a slowing in the pace of interest rate increases.

The Kospi broke 2,500 for the first time since August, before settling back below that level, while the won traded below 1,300 to the dollar, a level last hit in August.

“The time for moderating the pace of rate increases may come as soon as the December meeting,” said Jerome Powell during a speech at the Brookings Institution in Washington. But he added, “cutting rates is not something we want to do soon. So that’s why we’re slowing down, and going to try to find our way to what that right level is.”

On Thursday, foreign investors net purchased 32.8 billion won of Kospi shares and institutional investors 227 billion won. Individual investors unloaded 278.99 billion won of shares.

At the end of the trading day, the index settled at 2,479.84 points, with Samsung Electronics up 0.64 percent and SK hynix down 0.35 percent. The won ended the day at 1,299.70, up 1.45 percent.

Korea's benchmark index is up about 16 percent from the recent low and the currency is up 10 percent.

The Federal Reserve upped the rate by three-quarters of a point four times straight to a range of 3.75 to 4.00 percent, compared to 0.25 percent in the same month just a year earlier. The Bank of Korea raised the rate to 3.25 percent in November, from 1.00 percent in the same month a year earlier.

In an interview with Reuters on Wednesday, Bank of Korea Gov. Rhee Chang-yong projected the terminal rate will be 3.50 percent if events unfold as expected.

In a press conference in November, Rhee said the board was split on the terminal rate. Three members from the board proposed 3.50 percent, while two proposed the possibility of going to 3.75 percent. Once member said 3.25 percent is desirable.

To ease the side effects of the rapid rate increase, the central bank and the government rolled out measures to support financial institutions.

The Bank of Korea will buy up to 2.5 trillion won of repurchase agreements (repos) to help some financial institutions make their contributions to a market stabilization fund, citing liquidity crunch in short-term market.

BY JIN MIN-JI [jin.minji@joongang.co.kr]