Local economists are raising concerns over the negative effects an expected interest rate hike by the United States later this year might have on the Korean economy.

The possibility of massive capital outflow is likely to grow further, as the Bank of Korea lowered its benchmark interest rate once more last Thursday. Market attention has since converged upon the next meeting of the U.S. Federal Open Market Committee, slated for June 16-17 in Washington.

Any statement hinting at a hawkish monetary policy from Federal Reserve Chair Janet Yellen could signal a burden for Korea, which may be pressured to scrap its low-rate policy in the near future, irrespective of whether it sees an economic recovery or not.

“A U.S. rate hike is scheduled during the second half or later. (If it is conducted), Korea will be pressured to raise the rate,” said Korea Institute of Finance senior research fellow Park Jong-kyu.

Park had warned of the BOK’s further rate cut. He said many households, which were issued bank loans on low rates, will be saddled with a heavier burden of redemption when Korea is compelled to follow suit with the U.S. in the coming months.

Some economists including Shin Min-young, researcher from the LG Economic Research Institute, have downplayed the positive effects from rate cuts. They say the effects are restricted in terms of boosting the economy amid the structurally weak consumer sentiment from the all-time high outstanding household debt.

The International Monetary Fund and the World Bank Group each also recently predicted that a rate hike in the U.S. could deal a blow to emerging markets.

If the FOMC delays the timing of its tighter monetary policy to the end of 2015 or first quarter of 2016, Korea could enjoy relatively sufficient time to benefit from its rate cut.

But a large number of global analysts are projecting that a U.S. rate increase could come around September 2015, focusing on the coming statements next week.

Under this scenario, the BOK may be confronted with aggravated pressures to revise its monetary policy after this summer. Should the central bank freeze the rate even after a U.S. raise, Korea could see the profitability of treasury bonds overtaken by that of U.S. bonds.

The Korean government expects a revival of consumer sentiment and improvement in exports via possible depreciation of the Korean won against the U.S. dollar and the Japanese yen from the June 11 rate cut. The key rate is at a historic low of 1.5 percent per annum.

By Kim Yon-se (kys@heraldcorp.com)