Fed's dovish signalling a plus for Korea

Indications that U.S. rate increases will be halted for now are a big plus for Korea's financial and foreign exchange markets, Korean financial regulators and the country's central bank said Thursday.

Bank of Korea Gov. Rhee Chang-yong, left, and Finance Minister Choo Kyung-ho at a meeting held Thursday morning in Incheon following the Federal Reserve's decision to raise the rate by 25 basis points. [BANK OF KOREA]

Indications that U.S. rate increases will be halted for now are a big plus for Korea's financial and foreign exchange markets, Korean financial regulators and the country's central bank said Thursday.

They did warn of the need to continue monitoring the market closely in case of a rise in uncertainties.

"Concern for high inflation persists, and the expansion of the recurrence of uncertainties in the global financial market and in real economy cannot be excluded," Finance Minister Choo Kyung-ho and the chiefs of the Bank of Korea, the Financial Services Commission and the Financial Supervisory Service said in a statement following a meeting Thursday.

Citing flows in the stock and corporate bond markets, the authorities vowed to "strengthen monitoring of the domestic and global financial markets" and to "inspect weaknesses."

The meeting followed the Federal Reserve's 25 basis points increase in the policy rate Wednesday, a unanimous decision that put the federal funds rate to a range of 5.00 to 5.25 percent.

It is the 10th increase in 14 months, taking the rate to the highest levels in 16 years.

The Fed signaled the Wednesday decision may be the last raise for now.

"We're no longer saying that we anticipate" additional interest rate increases, Federal Reserve Chair Jerome Powell during a press conference following the rate announcement.

He said the banking turmoil since March appears to be "resulting in even tighter credit conditions for households and businesses."

He added that the committee will take into account the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation in determining what additional policy firming may be appropriate to return inflation to 2 percent over time.

"Our future policy actions will depend on how events unfold."

"Powell did not entirely rule out the chance of additional increases, but the rate increase cycle is seen to have ended," said Lim Jae-kyun, an analyst at KB Securities, in a report Thursday.

The Bank of Korea kept its policy rate unchanged at 3.50 percent in the past two meetings.Its next Monetary Policy Board meeting is scheduled to take place on May 25.

Bank of Korea Gov. Rhee Chang-yong said Wednesday it's too "premature" to discuss rate cuts, citing core inflation that's sticky and remains above 4 percent.

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