Choo Kyung-ho and Lee Chang-yong Meeting... "US Giant Step Has Limited Impact on Domestic Market"

Choo Kyung-ho Holds Emergency Macroeconomic and Financial Meeting
Buyback and Simple Treasury Bond Purchases During Market Instability
Immediate Activation of Past Financial Sector Market Stabilization Measures

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho [Photo by Yonhap News]

The U.S. Federal Reserve (Fed) has implemented a 'giant step' (a 0.75 percentage point increase in the benchmark interest rate) for two consecutive months. In response, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho met with Bank of Korea Governor Lee Chang-yong and others to discuss countermeasures. Deputy Prime Minister Choo stated that the U.S. rate hike aligns with market expectations and its impact on the domestic market will be limited.

On the 28th, Deputy Prime Minister Choo held an emergency macroeconomic and financial meeting at the Bankers' Hall in Jung-gu, Seoul, with Governor Lee, Financial Services Commission Chairman Kim Ju-hyun, and Financial Supervisory Service Governor Lee Bok-hyun, where he made these remarks.

Deputy Prime Minister Choo said, "The recent Fed decision largely meets market expectations, and as the international financial markets have smoothly absorbed the results of this Federal Open Market Committee (FOMC) meeting early this morning, the impact on the domestic financial market is expected to be limited."

Earlier, on the 27th (local time), the U.S. Fed raised the benchmark interest rate by 0.75 percentage points from 1.50?1.75% to 2.25?2.50%. This consecutive 0.75 percentage point increase is the largest since December 1980, about 41 years ago. As a result, a reversal occurred where the U.S. benchmark interest rate surpassed South Korea's benchmark rate (2.25%).

Deputy Prime Minister Choo explained, "Due to the policy rate inversion between Korea and the U.S. caused by this U.S. rate hike, some concerns have been raised about foreign capital outflows. However, during the past three U.S. rate hike periods, policy rates between Korea and the U.S. were all inverted, but overall, foreign securities investment in Korea maintained a net inflow."

He added, "Looking at the external soundness of our economy, we maintain the highest-ever national credit rating based on solid economic growth and fiscal soundness. We also have sufficient foreign exchange reserves and a multi-layered liquidity supply system, providing a safety net to respond to crisis situations."

In particular, Deputy Prime Minister Choo pointed out that foreign securities funds have recorded net inflows in both stocks and bonds since the beginning of this month, emphasizing that "this demonstrates the robustness of our economy's fundamentals."

However, he stated that given the increasing uncertainty in the global economy, vigilance will not be relaxed.

Deputy Prime Minister Choo said, "To proactively respond to the increased volatility in the bond market caused by accelerated interest rate hikes, we will thoroughly implement stabilization measures for the corporate bond and commercial paper markets. Additionally, if the bond market reacts excessively, the government will pursue emergency early redemption (buyback) of government bonds, and the Bank of Korea will consider simple purchases of treasury bonds."

He continued, "If the financial market shows excessive concentration, we will promptly activate financial sector market stabilization measures used during past financial crises. We will re-examine their effectiveness, activation criteria, and the need for improvements under current conditions. We will also prepare advanced foreign exchange market measures by the third quarter to transform the domestic foreign exchange market structure into a globally open and competitive system," he emphasized.

Deputy Prime Minister Choo added, "We will make policy efforts to have South Korea included in the World Government Bond Index (WGBI), building on the tax reform plan that exempts interest and capital gains on government bonds held by non-residents and foreign corporations."

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