Deputy Finance Minister Lee Eokwon Warns of "Potential Financial Market Seizure"... Emphasizes Thorough Risk Management (Comprehensive)

Deputy Minister of Economy and Finance to Hold 'First Macroeconomic and Financial Meeting' on the 20th
Deputy Minister Lee Eokwon: "With a Humble Attitude... Will Ensure Thorough Risk Management"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The government has observed that the low inflation and low interest rate environment has been adapted to, but warned that if concerns about future interest rate hikes grow, shocks could hit the global financial markets. Furthermore, it stated that it will not be satisfied with improved indicators and will strive to minimize the gap between indicator-based economic conditions and perceived economic conditions.

On the 20th, Lee Eokwon, First Vice Minister of Strategy and Finance, attended a macroeconomic financial meeting held at the Seoul Banking Hall and said, "If concerns about rising inflation and interest rates intensify significantly, it is difficult to rule out the possibility of the market reacting spasmodically."

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.

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, following the Global Financial Crisis (GFC), the Fed’s communication errors in the process of normalizing monetary policy caused nominal interest rates to surge to 1.36% and real interest rates to 1.59%. When companies or banks have issued bonds at low interest rates for a long period and rates rise, market shocks may occur.

Vice Minister Lee emphasized, "Recently, an uneven recovery pattern has been observed where emerging countries’ economic recovery lags behind that of advanced countries," adding, "We must also be cautious of the possibility that increased capital outflow pressure from emerging countries could have negative repercussions on financial markets."

He further stated that he would 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 uneven recovery between advanced and emerging countries could bring.

He concluded, "We will take a broad view while paying close attention to details in a comprehensive and meticulous manner to ensure thorough risk management," and added, "The government will not be satisfied with improved indicators and will accelerate efforts to minimize the gap between indicator-based and perceived economic conditions to promote economic recovery."

Meanwhile, academia also diagnoses that interest rate hikes can directly lead to shocks in financial markets. Professor Lee Inho of Seoul National University’s Department of Economics said, "When U.S. interest rates rise, there is a possibility that the stock market will move," adding, "As stock prices fall, those who invested with borrowed money may face forced liquidation, which could shake the financial markets."

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