S. Korea closely monitoring financial market over U.S. rate hike

February 1, 2023

SEOUL, Feb. 2 (Yonhap) — South Korea’s financial minister said Thursday the overnight rate-hike decision by the U.S. Federal Reserve has eased market uncertainties, although the government will continue to keep a watchful eye on potential volatility.

Earlier in the day, Finance Minister Choo Kyung-ho and other officials, including Bank of Korea Gov. Rhee Chang-yong, held an emergency meeting on macroeconomic situations.

The meeting came hours after the Federal Reserve raised its benchmark rate by 25 basis points to a target range of 4.5 to 4.75 percent. In a statement, the Federal Open Market Committee said, “Inflation has eased somewhat but remains elevated.”

In December, the Fed raised the key rate by 50 basis points, following four consecutive 75-basis-point hikes.

“Overnight, the global financial market remained stable, as the market considered the latest result from the FOMC has eased uncertainties to some extent,” Choo said.

“This year, the South Korean financial market is also showing signs of eased volatility on the back of the government’s efforts and expectations over a slowdown in global monetary tightening moves,” Choo added.

The minister said exports have remained sluggish, with the country’s inflation set to remain at a high plateau for the time being.

In January, the Bank of Korea raised the benchmark seven-day repo rate from 3.25 percent to 3.5 percent, the highest level since 2008. It was the seventh straight rate increase since April last year, the longest span of tightening.

In a release, the central bank said that Fed Chair Jerome Powell’s post-meeting remarks were interpreted by the market as “dovish,” which resulted in overnight rallies on Wall Street. It cited Powell’s remarks that disinflation has begun.

The BOK, however, voiced worries that volatility could mount as the gap in perception over the path of monetary policy between the Fed and the market remains large, adding it will pay close attention to market situations, including foreign exchange rates and capital flows, and take steps when needed in a preemptive and swift manner.