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GDP rise leads to stock rally; all eyes on base interest rate
October 27, 2009
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After the Bank of Korea said that the country’s gross domestic product grew 2.9 percent in the July-September period from three months earlier, the benchmark Kospi stock index gained 1 percent to close at 1,657.11. “The main reason behind the rise of Seoul stocks is the higher-than-expected GDP growth,” said Choi Jae-sic, an analyst at Daishin Securities Co. “But it is not yet certain whether the buying will be a long-term trend on solid optimism about the economy.” The BOK said that the high growth resulted mainly from a recovery of production following an end to aggressive inventory reduction. Companies had been slashing their inventories in the aftermath of the global financial crisis. On the other hand, bond prices, which move in inverse proportion to their yield rates, tumbled yesterday on the expectation that the central bank might raise the base rate as early as next month. The yield on the benchmark five-year Treasury rose 0.04 percentage point to this year’s high of 5.1 percent, while those of three-year Treasuries and 10-year Treasuries climbed by 0.03 percentage point each to 4.62 percent and 5.63 percent, respectively. Both figures were the highest level for this year. The central bank slashed the base rate by a total of 3.25 percentage points between October 2008 and February 2009 in the aftermath of the global financial crisis. It then kept the rate unchanged at a record-low 2 percent for eight consecutive months. Suggesting that the central bank was planning to make its move, BOK Governor Lee Seong-tae said in a National Assembly hearing last week, “I don’t think keeping rates too low for too long is good.” Still, a majority of analysts forecast that the central bank will raise the key rate early next year rather than next month or December. Jang Min, head of the macroeconomics research team at the Korea Institute of Finance, said: “It will be difficult for the central bank to increase the key rate next month because real estate markets are now stabilizing. The bank will likely raise the rate early next year after looking at the fourth-quarter economic data.” By Moon So-young, Kim Won-bae [symoon@joongang.co.kr] |
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