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US rate hike expected to have little impact on Korean market

March 22, 2018 - 09:41 By Yonhap
South Korea's central bank chief said Thursday that the latest interest rate hike in the United States will have little impact on the South Korean market.

"The US Federal Reserve's decision met market expectations, and as a result, the US market remained steady," Bank of Korea Gov. Lee Ju-yeol told reporters before attending an emergency meeting with officials in Seoul. "In South Korea, I expect that the financial market will have little impact from the Fed's decision."

The US central bank raised its policy rate to 1.50-1.75 percent on Wednesday as widely expected and has plans to increase the rate two more times within the year.

Lee said the Fed will likely maintain its rate hike schedule for 2018, but its tone may have become hawkish.

"For next year, the Fed may speed up its tightening approach. I think the decision at the Federal Open Market Committee can be interpreted as being more hawkish," he said.

Bank of Korea Gov. Lee Ju-yeol (C) talks to reporters before attending a meeting in Seoul on March 22, 2018. (Yonhap)

He said the central bank will keep closer tabs on the financial and economic issues at home and abroad, and seek the best timing to lift the rate from 1.5 percent as South Korea has a lower base rate than that of the US for the first time in more than 10 years.

The BOK is scheduled to hold its monetary policy meeting in May.

"We have to check many things before setting the timing of a rate increase," said Lee, adding that the BOK will issue a revised GDP forecast next month.

The top banker has stressed that he will keep the monetary policy accommodative for a while as Asia's fourth-largest economy has been experiencing a lukewarm recovery and low inflation pressure.

Lee will start his second four-year term in April as his reappointment was approved by the National Assembly on Wednesday.

Deputy Finance Minister Ko Hyung-kwon also said there is little chance of capital outflow due to a reversal of key interests between the world's top economy and South Korea that could destabilize the local financial market.

With the hike, America's benchmark interest rate is higher than that of South Korea. In November, 2017, the BOK lifted its key rate by a quarter percentage point to 1.5 percent amid clear signs of an economic recovery, ending the 16-month streak of its wait-and-see stance.

The situation has stoked concerns that it could result in a sharp capital outflow.

"Market concerns over a sharp rate hike have eased, but we need to remain vigilant," Ko said during a meeting with officials from other financial authorities.

The deputy minister said the government will take swift and decisive actions, if necessary, to stabilize the markets.

Meanwhile, the Financial Supervisory Service said it will hold a meeting of senior executives from banks later in the day and urge them to conduct a "stress test" of their capability to withstand external shocks.

Yoo Kwang-yeol, first senior deputy governor of the FSS, said in a statement that the latest US rate hike was in line with market expectations.

"However, there is the possibility that the volatility in financial markets could be widened," as the US is expected to further raise its key rates this year, Yoo said. (Yonhap)