The South Korean financial market will continue to face lingering uncertainties in the short term despite a U.S. interest rate freeze, the central bank chief said Friday.

The U.S. Federal Reserve kept its key interest rate at a record low at its September meeting amid rising concerns over slumping global demand and unstable financial markets, stemming from China, the world's second-largest economy.

"Fed Chair Janet Yellen seemed to take a dovish stance, but short-term uncertainties will still weigh on the financial market," Bank of Korea Gov. Lee Ju-yeol said in a meeting with local bank heads.

At a post-meeting conference, however, Yellen signaled that the U.S. central bank will turn hawkish at its next monetary meeting later this year.

"The Fed left open the possibility of a rate hike in October and December," the BOK chief said.

The central bank governor also noted that the reference to China in the Federal Open Market Committee statement signaled a change in the Federal Reserve's position.

"That the Fed has said it will take into consideration the global economic situation down the road shows a very big shift from its original stance," Lee said.

"(Yellen's reference to China during the post-meeting press conference) may signify that the U.S. Fed sees the slowed growth of emerging markets, including China, as a factor that is restricting growth in the U.S. economy."

Ahead of the Fed decision, the South Korean stock market experienced wild volatility and a 29-session selling spree by foreign investors due to fears that a higher U.S. rate would lead to raising interest burdens on many business and consumer loans.

South Korea's household debt has been gaining speed in recent months, reaching a record 1,130.5 trillion won ($948.4 billion) as of end-June, in tandem with four rounds of rate cuts delivered by the central bank since August last year. (Yonhap)


sahn@heraldcorp.com