South Korea's interest rate hike triggers violent shocks in stock and foreign exchange markets
[South Korea’s interest rate hike triggers violent fluctuations in the stock market and foreign exchange market] In order to curb the price rise caused by imported inflation, the Bank of Korea announced on July 16 that it would raise the benchmark interest rate from 2.50% to 2.75%, a rate increase of 25 basis points. As the industry generally believes that South Korea has entered an interest rate hike cycle, this move has triggered violent fluctuations in the stock and foreign exchange markets.
In order to curb the price rise caused by imported inflation, the Bank of Korea announced on July 16 that it would raise the benchmark interest rate from 2.50% to 2.75%, raising interest rates by 25 basis points. As the industry generally believes that South Korea has entered an interest rate hike cycle, this move has triggered violent fluctuations in the stock and foreign exchange markets. Affected by factors such as high international oil prices, South Korea has recently experienced high inflation. The overall inflation rate has soared to the highest level in two and a half years. In addition, the Korean won has continued to weaken this year. The exchange rate of the Korean won against the U.S. dollar once fell by about 6%. The depreciation of the Korean won has further aggravated imported inflationary pressure. Meritz Securities analyst Lee Seung-hoon said that the Bank of Korea's interest rate hike was completely expected by the market. At its May policy meeting, it released a signal to further tighten monetary policy by raising the "K dot plot" (forward-looking interest rate guidance chart). Yonhap News Agency reported that after this interest rate hike, the gap between the benchmark interest rates of South Korea and the United States narrowed to 100 basis points from the previous 125 basis points. The market generally predicts that the Bank of Korea will raise its benchmark interest rate again in August or October this year, officially entering an interest rate hike cycle. In recent days, South Korea's stock market has frequently plummeted, triggering the circuit breaker mechanism several times. Affected by the interest rate hike, the Korea Composite Stock Price Index (KOSPI) fell sharply by 6.37% on the 16th, once again falling below the 7,000-point mark, closing at 6,820.60 points. Earlier in the day, due to violent fluctuations in South Korea's KOSPI200 index futures, the Korea Stock Exchange initiated "temporary trading suspension" measures for the 37th time this year, suspending programmed trading and selling operations for 5 minutes. In the foreign exchange market, the Korean won exchange rate strengthened on the 16th, rising to 1,485 won per U.S. dollar, rising for five consecutive trading days and hitting the highest level since mid-May. However, industry insiders pointed out that the rising space of the South Korean won will be limited, and the situation between the United States and Iran may increase the demand for safe havens in the US dollar, thereby suppressing the appreciation trend of the South Korean won. (