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(Yonhap Interview) U.S. rate hike may have positive impact on Korean economy: U.S. expert

All News 17:05 July 26, 2016

By Kim Boram

SEOUL, July 26 (Yonhap) -- A possible U.S. rate hike may bring about uncertainties in the global financial market, but it will also provide greater opportunities for the South Korean economy as it means the world's largest economy is clearly in upside mode, a Harvard University professor said Tuesday.

"(An interest rate increase is) based on the facts when the open market committee makes its decision," Prof. Richard Cooper said in an interview with Yonhap News Agency and other South Korean media on the sidelines of the Global Financial Stability Conference held in Seoul.

"So if the American economy is unusually strong, we will see a rate hike, maybe even two (times). If the American economy is not so strong, we may see only one or perhaps even none by the end of year."

The Federal Reserve raised the key rate in December last year for the first time in nearly 10 years, heralding the end of the quantitative-easing period.

It also said that it will announce two or three interest rate hikes before the end of 2016, without giving out details on the timing of the action.

But the U.S. central bank has remained unmoved for nearly six months, freezing the rate in its latest decision-making meeting held in June, citing poor job reports.

Its unclear attitude has fueled uncertainties in the global financial market, coupled with the latest British vote to leave the European Union.

The South Korean financial market has also fluctuated widely in accordance with the possibility of a U.S. rate hike, as a higher interest rate will spark a sudden outflow of foreign capital in the country.

And it will weigh heavily on the country's mounting household debts that have already topped the 1,000 trillion won level last year.

The professor at Harvard University, however, advised that South Korea, whose economy highly depends on trade, place the U.S. interest rate hike issue in the context that the U.S. economy is in good condition.

"The important point for Korea and for other trading partners of the U.S. is that any rate increase will come in the context of a stronger American economy, and stronger demand for Korean products," said Cooper.

"It's a mistake to think of a rate increase by itself in the abstract. We have to put the rate increase in context."

The U.S. is South Korea's second-biggest trade partner after China, with the bilateral free trade pact taking effect in 2012. Trade volume between the two countries reached US$115 billion last year, with South Korea's trade surplus of $28.3 billion.


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