The Federal Reserve has, of course, raised interest rates in the United States by a half percentage point, and is expected to do so several more times this year, possibly even a hike of 75 basis points as soon as next month.
They want to bring inflation back down.
And the Bank of Korea is closely watching those moves in a balancing act trying also to bring down inflation, but protect the country's fragile economic recovery.
How do the Fed's moves affect South Korea, whose currency has been rapidly depreciating as rates rise in the U.S.?
Its financial markets have also dealt a blow.
To find out more, we are pleased to welcome tonight Dr. Yang Hee-dong, Professor of Business Administration at Ewha Womans University.
1) Let's first look at inflation in Korea. Prices have been driven higher by rising energy costs, and more recently by food because of supply issues. There are monetary factors too. How can we look at these different factors of perhaps "kinds" of inflation that we're seeing push prices higher?
2) There's not a lot central banks can do about some of these factors. To see inflation come down, do we just have to wait and hope that there's a resolution to the war in Ukraine, China opens up from COVID, and supply chains catch up? What can be done?
3) A primary goal of the Federal Reserve is maximum employment in the U.S. The job market there is really right now. It seems the equity markets will take a hit. But how is the Fed going to raise rates to what some would say needs to be a much, much higher level while not hurting jobs too badly?
4) Watching the Fed, the Bank of Korea will have some tough choices to make in terms of interest rates. It was one of the first central banks to start raising last year. And it's going to want to keep up with the Fed, but at the same time not jeopardize the economic recovery we've been seeing. How do you see the BOK approaching rates now?
5) The Korean currency has been losing ground against the U.S. dollar. It's now basically at levels we haven't seen since the financial crisis of 2008-2009. What does this mean for Korean consumers, Korean companies and growth?
6) The Korean government a couple of weeks ago made what's being called a "verbal intervention." First Vice Finance Minister Lee Eog-weon saying the authorities are ready to take steps to counter what he called the Korean won's "excessive" fall. Is that kind of warning sufficient, or what other kind of action was he referring to?
7) Historically speaking, we've only seen the exchange rate rise above these levels at times of crisis. The Asian Financial Crisis in the late 90s, the dot-com crash, and the Global Financial Crisis. Is this a sign of a wider crisis for the economy, or perhaps the financial markets?
8) Finally, Professor, the Korean government is going to be paying out a lot more money soon to small businesses and individuals hit by the restrictions in the pandemic. Payments worth tens of billions of dollars. Do you see those having an impact on inflation?