S. Korea to monitor volatility in finance sector amid Fed’s rate hike

South Korea’s Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho announces at a meeting on macroeconomic and financial conditions held in Seoul on July 27. [Photo by Yonhap]

South Korea’s Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said Thursday that the government will exercise special caution in responding to potential volatility in the financial sector, given the existing uncertainties in the monetary policy paths of major countries, including the U.S.

The remarks were made during a meeting on macroeconomic and financial conditions in Seoul, following the U.S. Federal Reserve’s latest approval of another 0.25 percentage-point hike in its benchmark interest rate.

“The market evaluation is that the outcome was not significantly different from expectations, and the global financial markets were generally stable in the early hours of the morning,” Choo said.

He also noted that the Korean financial market remains generally stable. While there is some concern that the domestic and international interest rate differentials have widened to 2.00 percentage points, which could lead to some uncertainty, the general assessment is that capital inflows and outflows, as well as exchange rate fluctuations, are generally influenced by various factors, including domestic economic and financial conditions and global economic and financial conditions, Choo noted.

“In terms of foreign investors, net inflows have been steady, with the exchange rate stable and the foreign capital market in good shape,” he said, adding that “as domestic and external economic and financial uncertainties persist, the government will further strengthen monitoring of major risk factors in close coordination with the Bank of Korea, and if necessary, we will promptly implement market stabilization measures in accordance with the situation-specific response plans.”

Earlier, the U.S. Federal Reserve raised its benchmark interest rate target range by 25 basis points to 5.25~ 5.50 percent at its Federal Open Market Committee (FOMC) meeting held on Tuesday and Wednesday. This is up to 2.00 percentage points higher than South Korea’s 3.50 percent.

“It is certainly possible we would raise the funds rate at the September meeting if the data warranted, and I would also say it’s possible that we would choose to hold steady at that meeting if that’s what the data called for,” Fed Chair Jerome Powell said in a press conference, leaving the door open for both a rate hike and a freeze.