The Bank of Korea Says "Domestic Market Uncertainty May Increase Depending on US Terminal Rate and Duration"

[Asia Economy Reporter Seo So-jeong] The Bank of Korea has forecasted that uncertainty may increase in the domestic financial and foreign exchange markets depending on changes in expectations regarding the final level and duration of the U.S. policy interest rate, as well as movements in major countries' exchange rates.

On the morning of the 15th, the Bank of Korea held a 'Market Situation Review Meeting' chaired by Deputy Governor Lee Seung-heon to assess the international financial market situation following the U.S. Federal Open Market Committee (FOMC) results and their impact on the domestic financial and foreign exchange markets.

At the meeting, Deputy Governor Lee evaluated, "The 0.50 percentage point increase in the policy interest rate at this FOMC meeting was in line with market expectations," and added, "Despite the upward revision of next year's policy interest rate forecast (from 4.6% to 5.1%, median basis), volatility remained limited in the international financial markets as Fed Chair Jerome Powell's remarks were perceived as less hawkish."

However, Deputy Governor Lee noted, "It is necessary to pay attention to Chair Powell's emphasis that the restrictive policy stance is not yet sufficient and that the final interest rate level and its duration are important."

Chair Powell stated, "The final interest rate level should be maintained until there is confidence that inflation will continuously decline," and "The speed of rate hikes is less important than the final rate level and how long the restrictive stance is maintained at a certain rate level."

Deputy Governor Lee said, "Although concerns about tightening have somewhat eased due to the Fed's adjustment in the pace of rate hikes, we cannot rule out the possibility of renewed volatility in financial markets due to changes in policy expectations based on inflation conditions in the U.S. and other major countries, as well as concerns about a global economic recession," and emphasized, "As the interest rate differential between Korea and the U.S. has widened due to U.S. rate hikes, we will closely monitor changes in the domestic financial and foreign exchange markets, including exchange rates and capital flows, and will promptly implement market stabilization measures if market volatility significantly increases."

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