Deputy Finance Minister Lee Eokwon: "Rising Concerns Over Inflation and Interest Rates... Possible Financial Market Seizure" (Update)

Deputy Minister of Economy and Finance to Hold 'First Macroeconomic and Financial Meeting' on the 20th
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[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The government emphasized that it will examine more broadly and meticulously the potential impacts of instability in the international financial markets on the Korean economy. It also stated that it will not be satisfied with improved indicators alone and will minimize the gap between indicator-based and sentiment-based economic conditions.

Lee Eokwon, First Vice Minister of Strategy and Finance, attending the macroeconomic and financial meeting held at the Korea Federation of Banks building in Seoul on the 20th, said, "If concerns about rising inflation and interest rates escalate significantly, it is difficult to rule out the possibility of the market reacting spasmodically." He pointed out that if companies or banks have been issuing bonds at low interest rates for a long time and interest rates rise, market shocks could occur.

This statement is interpreted as a reference to the 'taper tantrum.' In 2013, Ben Bernanke, then Chairman of the U.S. Federal Reserve (Fed), hinted at reducing bond purchases as the economy showed signs of emerging from the shadow of the financial crisis, leading to a sell-off of U.S. Treasury bonds. Emerging countries raised their benchmark interest rates to prevent capital outflows, which in turn slowed their economies.

Vice Minister Lee further stated that he will examine ▲ the increased debt burden on households and companies due to rising interest rates ▲ the increased corporate burden from rising raw material prices ▲ and the negative ripple effects that could arise from uneven recovery between advanced and emerging countries.

He also emphasized, "We will proactively review the risks of vulnerable emerging countries, where concerns about the recent economic and financial situation have been raised, and the pressure of capital outflows."

According to the 'Impact of the Global Bond Tantrum on the International Foreign Exchange Market' report published by the International Financial Center on the 9th, during the 2013 taper tantrum, nominal interest rates surged to 1.36% and real interest rates to 1.59% due to communication errors during the Fed's attempt to normalize monetary policy after the Global Financial Crisis (GFC).

Vice Minister Lee added, "An uneven recovery pattern is being observed, where emerging countries' economic recovery is slower compared to advanced countries," and "We must also be cautious about the possibility that increased capital outflow pressure from emerging countries could have negative effects on financial markets." He also mentioned that geopolitical risks such as the U.S.-China conflict and rising tensions in the Middle East remain present.

Regarding the domestic real economy, he evaluated, "Thanks to the global economic recovery, improvements are continuing, centered on exports and investment." He noted, "The Consumer Sentiment Index (CSI) in March exceeded 100 for the first time in 14 months, showing signs of recovery," and "The number of employed persons in March increased by 314,000, turning positive for the first time in 13 months, indicating that economic recovery is partially leading to employment improvement."

Regarding the domestic financial market, Vice Minister Lee assessed, "Foreign investors switched to net buying of stocks in April, and the KOSDAQ surpassed 1,000 points for the first time in 20 years and 7 months," adding, "The rapidly rising government bond yields have recently shown some signs of stabilization."

Finally, Vice Minister Lee stated, "We will manage risks with a broad perspective and detailed scrutiny," and "We will closely communicate not only with domestic institutions but also with major overseas missions in New York, Washington, and elsewhere to expand the scope of risk detection and strengthen response capabilities."

This content was produced with the assistance of AI translation services.