[Asia Economy Reporter Park Soyeon] Attention is focused on whether the recent rise in market interest rates will spread shocks beyond the bond market to other asset markets.
On the 1st, Gong Dongrak, a researcher at Daishin Securities, pointed to ▲the burden of government bond supply and demand ▲the possibility of economic improvement and monetary policy shifts ▲concerns about rising inflation as the causes of the recent interest rate increase.
Among these, Researcher Gong evaluated that inflation risk is having a relatively stronger impact on interest rate trends compared to other variables. However, he analyzed that at this point, there is little room for inflation concerns to be reflected in interest rates to a large extent.
Researcher Gong said, "The actual inflation rate this year is already expected to temporarily exceed the target due to low base factors such as last year's negative oil prices," adding, "Therefore, even if figures exceeding the inflation target are recorded, it is highly likely to be regarded as an unavoidable situation numerically rather than a sudden change in inflation conditions."
He interpreted that the break-even inflation (BEI), an indicator that reflects future inflation expectations in the bond market, is rather confirming a peak in this interest rate rise phase. Although it has steadily risen since April last year, the bond market pricing suggests that inflation will not rise significantly beyond slightly above the low 2% range.
He also forecasted that the possibility of a change in monetary policy stance is not very convincing at the current level. This is because federal funds rate futures and implied rates, which reflect expectations for the benchmark interest rate in the bond market, still show no significant changes within a limited range.
Researcher Gong analyzed, "In this recent interest rate rise phase, while short-term rates have maintained a certain level, only long-term rates have surged sharply, causing the yield curve itself to steepen, which also indicates that concerns about a change in monetary policy are not significant."
The $1.9 trillion economic stimulus package proposed since the Biden administration's launch amounts to about 10% when converted to the current annual GDP level. South Korea also faces the burden of having to secure considerable resources through government bond issuance amid discussions on the 4th disaster relief fund supplementary budget.
Researcher Gong said, "This is a critical moment for the role of central banks, and we hold the view that monetary authorities can respond to stabilize financial markets," adding, "In the mid to long term, the upward trend in interest rates remains valid, but the recent steep rise in rates is expected to calm down in the short term (around one month)."
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