Authorities to closely monitor FX conditions amid Mideast crisis, US rate freeze
Finance Minister Koo Yun-cheol, right, speaks during a meeting on macroeconomics and financial issues in Seoul, Thursday. Lee Chan-jin, governor of the Financial Supervisory Service, left, and Bank of Korea Gov. Rhee Chang-yong also attended the meeting. Yonhap
The government will use all available resources to stabilize Korea's financial markets amid escalating tensions in the Middle East and the United States' rate freeze, Finance Minister Koo Yun-cheol said Thursday.
Koo made the remarks at a meeting on macroeconomic and financial issues held amid market volatility sparked after critical energy facilities in the Middle East were attacked during the ongoing war between the U.S., Israel and Iran, while the U.S. Federal Reserve decided to keep its interest rates unchanged, according to the Ministry of Finance and Economy.
The ministry said finance authorities agreed to continue round-the-clock monitoring of financial and foreign exchange (FX) markets, and take market stabilization measures, if needed, as uncertainties surrounding the Middle East persist.
"We will closely track FX market conditions and take timely action if the movement of the Korean won deviates excessively from its underlying fundamentals," Koo said.
On Thursday, the Korean won opened at 1,505 per dollar, down 21.9 won from the previous session, breaching the psychologically and technically critical 1,500 won threshold.
In the bond market, the government and the Bank of Korea will closely work together to implement market stabilization measures in a timely manner, including emergency buybacks and purchases of government bonds, when necessary, Koo said.
For equities, the government will refrain from artificially propping up stock prices and instead step up efforts to fundamentally strengthen the stock market, such as a push for banning duplicate listings and vitalizing the tech-heavy KOSDAQ index, he added.
To prepare for worst-case scenarios, financial authorities agreed to conduct stress tests across the entire financial sector to assess Korean markets' crisis response capabilities, while making preemptive preparations to expand the market stabilization program comprising at least 100 trillion-won ($66.6 billion) support.
Regarding the latest U.S. rate freeze, authorities said it was an expected outcome, but uncertainties surrounding the world's largest economy's monetary policy direction still remain due to inflation concerns sparked by surging oil prices and supply chain disruptions caused by the Iran crisis, according to the ministry.
The ministry said authorities also concurred on the need for swift implementation of a supplementary budget to reduce cost burdens for vulnerable households and minimize negative impact on the economy, noting that soaring oil prices could fuel inflation and dampen consumuer sentiment.