[사설]US base interest rate cut… The problem is ‘high interest rates’ and ‘Trumpism’ is coming ｜Dong-A Ilbo

The U.S. Federal Reserve lowered its benchmark interest rate by 0.25 percentage points yesterday. However, global market interest rates are running high due to the election of candidate Donald Trump as the next president. The Bank of Korea’s concerns over assessing the timing of further cuts in the base interest rate are bound to deepen.

Following the 0.5 percentage point ‘big cut’ two months ago, the US base interest rate fell to 4.50-4.75%. The gap with Korea’s base interest rate of 3.25% is 1.5 percentage points. Under normal circumstances, the Bank of Korea would also have the conditions to lower interest rates. The growth rate forecast for this year, which was 2.5%, is expected to be lowered to 2.2-2.3%, so economic stimulus is also needed. However, interest rates, whose direction has become uncertain due to Trump’s election, are expected to become a drag.

If tariffs are imposed on all imported goods, as President-elect Trump pledged, inflation in the United States, which had been subsiding, could recur, forcing the Federal Reserve to stop or slow down its interest rate cuts. If the pledge to cut corporate and income taxes becomes a reality and the fiscal deficit increases, the second Trump administration will have to print a huge amount of government bonds, which will cause interest rates on government bonds to rise (and government bond prices to fall).

There are concerns that if the Trump administration actually imposes tariffs of 10 to 20 percent on imported goods, including those made in Korea, and 60 percent on Chinese products, Korea’s exports will decline by 7 to 8 percent. As the number of dollars earned from exports decreases, the exchange rate rises further (the value of the won falls), and as a result, import prices rise, the Bank of Korea will be in a situation where it must raise the base interest rate even though consumption is shrinking.

‘Trumpism’, which will become a reality in January next year, is highly likely to cause a high interest rate and high exchange rate shock to Korea. Financial authorities must strictly manage the speed and scale of loan growth to prevent excessive household lending, which is the highest among developed countries, from turning into a financial market risk.

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