Vigilance vowed by Korea's finance ministry following Fed's move

The finance ministry said it will maintain a high state of alert following Federal Reserve’s aggressive rate increase Wednesday and the recent missile launches and artillery volleys.

Finance Minister Choo Kyung-ho, center, enters a room to participate in a meeting held in central Seoul to discuss economic matters on Thursday. [NEWS1]

The finance ministry said it will maintain a high state of alert following Federal Reserve’s aggressive rate increase Wednesday and the recent missile launches and artillery volleys.

Following the Fed's fourth consecutive rate increase of 75 basis points, Korean financial authorities held a meeting to discuss how Korea should respond.

The Fed set the target federal funds rate in a range of 3.75 to 4.00 percent, the highest since early 2009.

The meeting in central Seoul on Thursday was attended by Finance Minister Choo Kyung-ho, Bank of Korea Gov. Rhee Chang-yong, Financial Services Commission Chairman Kim Joo-hyun and Financial Supervisory Service Gov. Lee Bok-hyun.

“The participants agreed to respond while maintaining a high level of vigilance as uncertainties on our market and the global financial market have grown following the Fed’s rate increase,” read the statement from the Finance Ministry.

It added that the impacts on the domestic market of North Korea’s firing of ballistic missiles seems limited at this point considering the response by the international financial markets, though ensuring the authorities will stay vigilant also in regards to North Korea-related risks.

In a separate meeting hosted by Bank of Korea Deputy Gov. Lee Seung-heon on the same day, the central bank said the Fed’s latest decision is cause for caution.

Lee said the bank will strengthen the monitoring of the currency exchange rate and the inflow and outflow of capital.

In a press conference Wednesday, Fed Chairman Jerome Powell said that the thoughts of a potential pause of rate increase would be “very premature.”

“We continue to anticipate that ongoing increases will be appropriate,” Powell said.

The three-quarter point increase had been widely projected by the market from Powell’s hawkish tone, but its impacts on the local market are nonetheless expected to be strong amid the upheaval spreading in the bond market.

On Wednesday, Heungkuk Life Insurance delayed the redemption of perpetual bonds. While not a default, the step was unusual and the first such case in Korea since 2009.

The $500 million bond issued by the company in November 2017 was expected to be redeemed this month. But it chose to postpone the exercising of a Nov. 9 call option for the perpetual note, citing market conditions.

The announcement followed the default on commercial paper by the developer of the Legoland Korea theme park in September.

Authorities have announced measures to help stabilize the financial market, including a 50 trillion-won ($35.12 billion) aid package and the Bank of Korea’s expansion of the range of bonds it accepts as collateral.

The Bank of Korea is scheduled to hold the last Monetary Policy Board meeting for this year on Nov. 24.

BY JIN MIN-JI [jin.minji@joongang.co.kr]