Fed May Raise Interest Rate Earlier Than Predicted
The Korea Economic Research Institute of the Federation of Korean Industries said on June 7 that a reasonable increase in U.S. interest rate is estimated at 1.37 to 1.54 percentage points as compared with the Q1 rate of 0.07 percent.
“In the United States, the year-on-year consumer price increase was 4.2 percent in April this year, the highest level since September 2008,” the institute explained, adding, “The IMF recently estimated this year’s U.S. economic growth at 6.4 percent, which means a rise in U.S. interest rate may be earlier than predicted and South Korea needs to prepare for it.”
The institute also mentioned that the rise in U.S. interest rate by 1.37 to 1.54 percentage points would lead to a net investment outflow from South Korea of US$1.6 billion to US$1.8 billion.
“If South Korea raises the short-term government and public bond rates to the same extent, the average interest on household loans will rise 1.54 percentage points to 1.73 percentage points,” it went on to say, continuing, “Given that more than 57 percent of South Korean households currently have financial debts, the interest burden per household is forecast to increase by 2.2 million won to 2.5 million won and the resultant increase in household loan interest amounts to 25.6 trillion won to 28.8 trillion won a year.”