Gov't to closely monitor market after Fed's aggressive monetary tightening
Finance Minister Choo Kyung-ho speaks to reporters after holding an extended meeting on the macroeconomic situation with chiefs of the Bank of Korea and top financial regulators in Seoul, June 16. Yonhap
The government will keep close tabs on the financial market following the Federal Reserve's overnight rate hike decision as worries are growing over heightening volatility from the U.S.' aggressive monetary tightening, the country's top financial policymaker said Thursday.
On Wednesday (local time), the Fed decided to hike its interest rate by 0.75 percentage points in the latest move to tighten monetary policy and tame soaring inflation. This was the first such steep rate increase since November 1997.
Fed Chair Jerome Powell said the central bank is also considering a 0.5 or 0.75 percentage-point rate hike in the rate-setting meeting next month.
Korea's financial market has been subdued with its key stocks and local currency losing ground in recent days. The Kospi fell for the seventh straight session Wednesday, ending at the lowest point in about 19 months, with the won falling to its lowest level since July 14, 2009.
"Anxiety is lingering that the global financial market will suffer increasing volatility as fears that accelerating (monetary) tightening could lead to an economic slowdown are drawing attention," Finance Minister Choo Kyung-ho told reporters after holding an extended meeting on the macroeconomic situation with chiefs of the Bank of Korea (BOK) and top financial regulators in Seoul.
"With protracted uncertainty in place and the U.S. Federal Reserve's accelerating rate increase, the government and the central bank shared the view that it is necessary to respond with a sense of extraordinary urgency," he added.
The government and the BOK agreed that monetary policy should be managed in a way that places more emphasis on fighting inflation and beefs up cooperation to prevent market jitters from spreading.
In particular, they agreed to raise their guard against excessive volatility in the foreign currency market and do their best to stave off herd behavior down the road, Choo said.
The minster also said the government and the BOK will carry out emergency buybacks and Treasury purchases "at an appropriate timing" if the local bond market suffers steep volatility.
Last month, the BOK hiked its policy rate by a quarter percentage point to 1.75 percent, the fifth increase in borrowing costs since August last year. The central bank earlier hinted at further rate hikes to keep a lid on upward inflationary pressure. (Yonhap)