Influential think-tank urges South Korea to cut rates
An influential think-tank on Sunday urged the central Bank of Korea to cut interest rates quickly to prevent market instability stemming from wide interest rate gaps with the United States.
By Agencies |
SEOUL: An influential think-tank on Sunday urged the central Bank of Korea to cut interest rates quickly to prevent market instability stemming from wide interest rate gaps with the United States.
In a report published on Sunday, the Korea Institute of Finance (KIF) noted that foreigners have been snapping up South Korean bonds to capitalise on the country's high interest rates compared with those of the United States.
"In light of foreigners' rush to the local bond market, the Bank of Korea (BOK) should cut the interest rate in a pre-emptive manner," the think-tank said.
"If the interest rate gap between South Korea and the United States lasts for a long period, it could come as a destabilising factor for the local bond market."
Should foreign investors suddenly withdraw funds from the local bond market, it would throw the market into chaos, it warned.
Citing inflation concerns and uncertainty about the global economy, the Bank of Korea last Wednesday kept its key interest rate unchanged for a sixth straight month.
Foreign ownership of bonds listed on the local bond market surged to 4.9 percent at the end of January, compared with a mere 0.6 percent at the end of 2006, according to KIF.
A daily net purchase of local bonds by foreigners jumped from 7.2 billion won (7.6 million dollars) in 2006 to 154 billion won last month.
In a report published on Sunday, the Korea Institute of Finance (KIF) noted that foreigners have been snapping up South Korean bonds to capitalise on the country's high interest rates compared with those of the United States.
"In light of foreigners' rush to the local bond market, the Bank of Korea (BOK) should cut the interest rate in a pre-emptive manner," the think-tank said.
"If the interest rate gap between South Korea and the United States lasts for a long period, it could come as a destabilising factor for the local bond market."
Should foreign investors suddenly withdraw funds from the local bond market, it would throw the market into chaos, it warned.
Citing inflation concerns and uncertainty about the global economy, the Bank of Korea last Wednesday kept its key interest rate unchanged for a sixth straight month.
ADVERTISEMENT
Foreign ownership of bonds listed on the local bond market surged to 4.9 percent at the end of January, compared with a mere 0.6 percent at the end of 2006, according to KIF.
A daily net purchase of local bonds by foreigners jumped from 7.2 billion won (7.6 million dollars) in 2006 to 154 billion won last month.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
