Political turmoil, recovery after impeachment, but the key is 'strong dollar' that no one can stop?

■ Broadcast: YTN Radio FM 94.5 (09:00-10:00)
■ Host: Reporter Cho Tae-hyun
■ Air date: December 17, 2024 (Tuesday)
■ Talk: Choi Jin-ho, Economist at Woori Bank's Investment Product Strategy Department

* The text below may differ from the actual broadcast content, so please check the broadcast for more accurate information.

◆ Reporter Cho Tae-hyun (hereinafter referred to as Cho Tae-hyun): It's a time for the rich to hear various information from experts in each field. Today, we will be joined by Choi Jin-ho, economist at Woori Bank's Investment Product Strategy Department. Please come in.

◇ Choi Jin-ho, Economist at Woori Bank's Investment Product Strategy Division (hereinafter referred to as Choi Jin-ho): Yes, hello. I'm Choi Jin-ho.

◆ Cho Tae-hyun: When I met you last time, I think we talked a little bit in a peaceful state, but everything seems to have changed a lot in the meantime.

◇ Choi Jin-ho: It's changing too fast.

◆ Cho Tae-hyun: It's such a dynamic Korea. What was the reaction of the financial market after the impeachment motion was passed over the weekend?

◇ Choi Jin-ho: First of all, the confusion in Jungkook is coming to an end. As a result, it seems that foreigners are also recovering some credibility. So in the case of stock prices, all of them have recovered to the level before the previous martial law, which was already impeached last week. In the case of interest rates, the level has been very low due to rising expectations that the Bank of Korea's Monetary Policy Committee will cut the base rate in January. And in the case of the won-dollar exchange rate, this anxiety has not been completely eliminated, so it has been lower than the high level of 1438~1439 won since martial law, but it has not been significantly lowered.

◆ Cho Tae-hyun: If you look at the stock market alone, it's been rising for 4 consecutive trading days, but it was adjusted yesterday and it's being adjusted a little today. It's around 2,470 right now. There are many reasons why we can't go up more powerfully after being adjusted here, but to name one, foreigners still don't look for us. They're still selling. There are also these points, but how do you see the possibility of an additional rise if foreigners return?

◇ Choi Jin-ho: Of course, it goes up when foreigners come back. In order for foreigners to return, the prerequisite is to ease such pessimism about the Korean economy, and in the end, stock prices are assets that feed on corporate growth and the economy, so the economy needs to improve, but the Bank of Korea's economic growth forecast for next year is 1.9%.

◆ Cho Tae-hyun: Is that possible given the current situation?

◇ Choi Jin-ho: I think the financial market thinks similarly. The consensus of market participants in the financial market is even 1.8% or 1.7%, which is lower than that. As the macro continues to be such a burdensome environment, the stock price lacks strength to gain momentum. As a result, as the overall factors such as discounts on won assets are reflected, the won-dollar exchange rate sometimes appeared in the 1,300 won range before martial law, but now it seems to have been completely fixed at 1,400 won.

◆ Cho Tae-hyun: It's a situation where the 1400 won range starts to get used to like the new normal. It would be difficult for individual companies or stock prices to gain strength when the country is weak. Do you think next year's growth rate will be less than 1.9%?

◇ Choi Jin-ho: First of all, I think exports next year will be the most important. It depends on the degree to which the negative effects of exports are reflected, but if the negative effects of exports are reflected more than expected, so if Trump's policy is stronger, it will be a little difficult to achieve 7.9%.

◆ Cho Tae-hyun: Looking at what's been said in the local media, he has a strong commitment to tariffs. I'm a bit scared to say this. . I think it'll come out in my dreams at night. Another thing to look at is that this week is the week of monetary policy, Super Week. The last meeting of this year's FOMC is scheduled this week, so what do you think about the outlook?

◇ Choi Jin-ho: The U.S. price and employment indicators, which were the prerequisites for the FOMC, were all released early this year and last week, and they met the expectations, so as the Fed announced in its dot plot before that, it will cut it to about 25p as scheduled by December. But the point to watch here is how forward guidance will be given to the base rate cut next year. Previously, I said that I would cut 100bp next year, so I would cut it 4 times. But in the meantime, the U.S. economy has not broken that much. It's because he's been relatively healthy. There is a possibility that it will be reduced to two or three times. The federal funds rate futures market is reflecting this more conservatively only twice.

◆ Cho Tae-hyun: Is this a meeting where the dot plot will be released?

◇ Choi Jin-ho: This is the December meeting. 4 times a year. 3, 6, 9, December.

◆ Cho Tae-hyun: Then if you look at the dot plot this time, I think we can roughly guess what path we will take next year. There's a reason why this week is called the Interest Rate Super Week. I'm most interested in this, but other than that, this is also an interest in Japan's monetary policy meeting. In the past, the N-Carrie trade was triggered and it was a mess. There is a lot of attention on whether Japan will raise the base rate this time, so what do you predict?

◇ Choi Jin-ho: From a long-term perspective, the direction of the hike cycle is right, with some raising interest rates in terms of normalizing monetary policy. However, in terms of speed, I think there is a high possibility of freezing a little this time. Officials from the central bank of Japan also said in interviews that they would closely monitor the effects of wages and prices on inflation, so this time, they will have a time to take a break and look at the effects of those indicators. However, the important thing this time is whether or not the BOJ will give the Bank of Japan an additional impression in January next year, or in the first quarter of the first half of next year, within the first quarter of next year. This is important because of the yen. Then, even if the pace is slow, if it gives a signal that Japan continues to raise its key interest rate, the yen will strengthen and can play a role in checking the current dollar's strength. But if we give this signal that we will take the monetary policy of Japan very slowly and smoothly, the yen will continue to weaken, leading to a strong dollar, so if the dollar sped, the won-dollar exchange rate could rise further.

◆ Cho Tae-hyun: I've been hit by stray bullets here and there, and I've even heard that there's a possibility of getting hit by stray bullets. Now, we've talked about monetary policy between the United States and Japan. I'm going to take a look at Korea's monetary policy, but this year, the Monetary Policy Committee is over, right?

◇ Choi Jin-ho: Yes, this year is over. The first 2025 Monetary Policy Committee is scheduled for Thursday, January 16th next year. Recently, the political situation has become very unstable, and economic pessimism has been strengthened, raising expectations that the Bank of Korea will cut its benchmark interest rate in January. So, the bond market is already at the level that the expectation that Korea's benchmark interest rate will be cut by 50 basis points next year is already reflected in the level. However, the problem is that the U.S. is in a cycle of lowering the benchmark interest rate, but there is a high possibility that such a signal will be expressed at this FOMC that it will take the cut very slowly.

◆ Cho Tae-hyun: So it's kind of a hawkish cut? What about FOMC?

◇ Choi Jin-ho: Yes, that's right. Even if I cut it, I think I'll give you a message that I'll do it very slowly in the future. And even if you look at the various policies that the Trump administration can bring in, they're all factors that support high interest rates in the U.S., and if high interest rates in the U.S. are supported, there's a phenomenon that the strong dollar always follows. So just looking at the U.S., there are a lot of strong dollar factors, but as I said earlier, if Japan wants to slow monetary policy normalization, there are no factors to check the strong dollar. Even if we look at Europe, Europe's economic growth consensus for next year is only 1.1%, which is half that of the United States. Korea is about 1.8 or 1.7, but it is worse than Korea, so the European Central Bank (ECB) has no choice but to signal that it will continue to cut interest rates more aggressively. As the euro weakens, when the euro and yen weaken, the strong dollar becomes obvious.

◆ Cho Tae-hyun: So in our case, should we say that there is a good chance that the exchange rate will also affect this monetary policy?

◇ Choi Jin-ho: That's right. In the case of Korea, the proportion of crude oil imports is particularly high. And since it is a country where the transfer rate itself, which stimulates import prices and leads to consumer prices, is estimated to be very high, if the exchange rate rises, it can be a very difficult environment to lower the base rate. Therefore, there are many demands to lower the benchmark interest rate because the domestic economy is difficult, and the Bank of Korea is expected to be fully aware of the need, but I think it will be a very complicated year for this to be able to continue lowering interest rates comfortably.

◆ Cho Tae-hyun: Then considering all these situations, it could be a difficult question from the doctor's point of view, but what do you think we should do?

◇ Choi Jin-ho: There is no fixed answer to monetary policy. In terms of the two goals, the economy and prices should be prioritized as a policy task that requires catching the more urgent first. Of course, it is difficult to predict how the Monetary Policy Committee can change the situation when January next year, but

◆ Because it's dynamic,

◇ Choi Jin-ho: At that time, in January, the decision seems to be different depending on which policy tasks the Monetary Policy Committee puts more priority. Since the economy is a little more urgent, I think that the monetary policy will be operated next year by giving a signal that the economy will be caught first, although there are price factors.

◆ Cho Tae-hyun: Politics should help the economy, but I think it's creating this situation where politics can't do this or that. So far, we have talked about various things surrounding interest rates with Choi Jin-ho, an economist at Woori Bank's Investment Product Strategy Department. Thank you for talking today.

◇ Choi Jin-ho: Yes, thank you.

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