Fed's rate hike to have limited impact on Korea's financial market: official
U.S. Federal Reserve Chair Jerome Powell addresses an online news conference in a frame grab from a video broadcast from the Fed building in Washington, Jan. 26. Reuters-Yonhap
The U.S. central bank's decision to deliver its first rate hike since 2018 is expected to have a limited impact on Korea's financial market as the move was in line with expectations, a senior government official said Thursday.
The Federal Reserve raised the federal funds rates by a quarter percentage point to 0.25-0.5 percent to fight high inflation Wednesday (local time), after freezing borrowing costs at near zero since March 2020 to cushion the fallout from the COVID-19 pandemic.
The Fed also signaled more aggressive monetary tightening, projecting six additional rate hikes this year to bring the benchmark rate to about 1.9 percent by the end of the year.
First Vice Finance Minister Lee Eog-weon said the rate hike is expected to have a limited impact on Korea, given reactions from global financial markets and Korea's economic fundamentals.
"But amid major central banks' continued efforts to tighten monetary policy, if Russia's default on its foreign debt materializes, we cannot rule out the possibility that jitters about liquidity (shortages) could occur globally," Lee said at a meeting on macroeconomics.
The official said the finance ministry will actively cooperate with the Bank of Korea to take actions to stem potential hikes in bond yields.
Earlier in the day, Finance Minister Hong Nam-ki said the government will step up its efforts to stabilize the foreign exchange market if the won's weakness is deemed excessive.
The Korean won fell to the 1,240 level against the greenback for the first time in nearly two years, Monday. (Yonhap)