Korean economy has decoupled from US economy: HSBC
12 Feb 2010
A senior economist with HSBC has said that Korea was decoupling from advanced economies as evident from the robust growth shown by its economy. He said that the Korean central bank needed to raise its key rate in order to tamp down inflationary pressure.
``Korea will see stronger growth than expected for this year and next year. Economic growth in Korea has decoupled from western countries ? it no longer relies on them,'' HSBC senior Asia economist, Frederic Neumann, said at a press conference in Seoul, Thursday.
Neumann made his comments on the same day as the Korean central bank said it was keeping the rate at its lowest level of two per cent for the twelfth straight month. He stressed that it was time for Korea to raise its key interest rate as the country was beginning to experience inflation, saying ``inflationary pressure is already in the pipeline.''
``It (Bank of Korea) needs to tighten monetary policy early. I suggest raising it 100 basis points until the end of this year. Korea's neutral key rate is four per cent. So, 100 basis points will not be enough to cool down the economy. Even three per cent will be too low,'' he said.
In the same breath he cautioned that the BoK should control the pace of credit tightening as too drastic a rate hike could put upward pressure on the local currency.
``If the BoK raises key rate to four per cent, the Korean won will appreciate. That's why I suggest a 100 basis points rate hike this year," he said.
