South Korea vigilant on market volatility after Fed’s hawkish stance



South Korea will be watching the financial market closely as market volatility could increase following the Federal Reserve’s signal of an earlier-than-expected rate hike, a senior government official said on Thursday.

After freezing its key rate near zero at a policy meeting, the Fed signaled an earlier-than-expected rate hike in 2023 as U.S. inflation rises amid an economic recovery. The US central bank also hinted that it had started discussing when to cut bond buying programs.

Bringing the Fed’s surprise results, South Korea’s key stock index, KOSPI, traded 17.17 points, or 0.52%, down to 3,261.51 at 11:22 am. Korean currency traded at 1,127.90 won to the US dollar, down 10.70 won from the previous session.

First Deputy Finance Minister Lee Eog-weon said the country has strong economic fundamentals and leeway to deal with potential market volatility, citing its foreign exchange reserves and a swap line extended currency with the United States.

“The government has sufficient leeway to deal with (potential market volatility) in an emergency situation,” Lee said at a government meeting on macroeconomic situations.

The official said the government will not lower its guard against financial market situations, as growing concerns over inflation and possible setbacks to accommodative monetary policy by major economies could significantly increase market volatility.

The Bank of Korea (BOK), the country’s central bank, said it plans to take action to stabilize the financial market if necessary.

The country has strengthened its capacity to secure liquidity in foreign currency in order to prepare for unexpected market routs.

South Korea’s foreign exchange reserves hit a record high of $ 456.4 billion in May, up $ 4.15 billion from the previous month, according to central bank data.

The BOK and the Fed agreed on Wednesday to extend their $ 60 billion currency swap deal for three months until December 31.

The two countries opened the swap line in March 2020 and extended it twice in an effort to alleviate the potential shortage of foreign currency liquidity amid the pandemic. (Yonhap)



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