Fed Rate Hike Widen Interest-Rate Gap with Korea
The US Federal Reserve raised its benchmark interest rate by 25 basis points on Wednesday, marking the end of a three-year pause in monetary tightening. This move has put upward pressure on the won-dollar exchange rate, with the Korean currency weakening to the 1,380-won range after briefly falling to the low 1,330-won range.
The widening interest-rate gap between the US and South Korea, now at 1 percentage point, is a concern for the Bank of Korea. The BOK had already raised rates in July and August, but may need to tighten further this year due to inflation and household debt factors.
Rising mortgage rates have topped 7 percent at commercial banks, raising concerns that highly leveraged homebuyers could struggle to make payments and be forced to sell their homes. This could trigger broader financial instability.