SEOUL– The U.S. Federal Reserve’s latest interest rate hike was in line with market expectations, but uncertainty still remains high over high inflation and an economic downturn, Seoul’s finance chief said Thursday.
Finance Minister Choo Kyung-ho made the remarks during an emergency macroeconomic meeting with Bank of Korea (BOK) Gov. Rhee Chang-yong and top financial regulators after the Fed slowed the pace of its rate hike to a half-point Wednesday (U.S. time) from its previous 75 basis point increases.
“The rate hike this time did not miss the market expectations. Volatility in the global financial market appears to have been limited overnight, but it remains to be seen how it will unfold down the road,” Choo said.
U.S. shares fell after the Fed’s decision. The Dow Jones Industrial Average declined 0.42 percent, and the tech-heavy Nasdaq Composite lost 0.76 percent.
Choo made note of Chair Jerome Powell’s remarks that maintaining a restrictive policy stance is needed for some time to restore price stability.
“Uncertainty in the financial market still runs high due to high inflation, an economic slowdown and monetary tightening of major nations. We cannot let down our guard,” Choo said.
“The government is doing its best to stabilize the market by actively sharing information and having communications,” Choo said, vowing to enhance monitoring.
In a separate meeting held by the BOK, Lee Seung-heon, deputy chief of the central bank, said that the market appears to estimate Powell’s post-meeting remarks as less hawkish than anticipated, which helped lessen market volatility after the Fed meeting.
Still, he said that the possibility of rising volatility cannot be ruled out due to persistent uncertainty over monetary policy direction in major countries, concerns over a recession and the wider difference in rates between South Korea and the U.S.
“As the reversal in rates between South Korea and the U.S. has widened due to the Fed’s latest increase, we will closely monitor the exchange rates, capital inflow and outflow, along with other financial and forex market conditions, and take timely stabilization steps in case volatility spikes,” he told the meeting.
The local stock and currency markets got off to a weak start.
As of 9:35 a.m., the benchmark Korea Composite Stock Price Index had fallen 0.59 percent from Wednesday’s close. The local currency was trading at 1,300.5 won against the U.S. dollar, down 4.2 won from the previous session.
Source: Yonhap News Agency