South Korean Financial Authorities Expect Limited Market Impact from Fed's First Rate Hike in Over Three Years
Key Takeaways
- •The US Federal Reserve raised its benchmark interest rate by a quarter percentage point to a target range of 3.75-4.00 percent, its first hike since July 2023.
- •South Korean financial authorities assessed that the Fed's rate hike would have a limited impact on financial markets because the adjustment had already been reflected in market prices.
- •Finance Minister Koo Yun-cheol chaired the review meeting, attended by Bank of Korea Governor Shin Hyun-song, Financial Services Commission Chairman Lee Eog-weon and Financial Supervisory Service Governor Lee Chan-jin.
- •The Fed signaled the possibility of another rate increase later this year, a decision participants attributed to US economic robustness, employment conditions, persistent inflation, rising oil prices and geopolitical uncertainties.
- •South Korea's authorities observed increasing volatility in the government bond market driven by external conditions and agreed to take market stabilization measures if necessary while monitoring domestic financial and foreign exchange markets.
South Korea's financial authorities said Thursday that the US Federal Reserve's decision to raise its key interest rate for the first time in more than three years is expected to have a limited impact on financial markets, as expectations for the move had already been priced in.
The assessment was made during a meeting chaired by Finance Minister Koo Yun-cheol to review the impact of the rate hike — a gathering that placed the finance ministry, the central bank and the country's top financial regulators around the same table. Bank of Korea Gov. Shin Hyun-song, Financial Services Commission Chairman Lee Eog-weon and Financial Supervisory Service Gov. Lee Chan-jin also attended.
Overnight, the Fed raised its benchmark interest rate by a quarter percentage point, its first hike since July 2023, bringing the target range to 3.75-4.00 percent. The US central bank also signaled the possibility of another increase later this year amid persistent inflation and high oil prices — a signal that keeps the external backdrop on Seoul's radar beyond an already-priced-in move.
"The participants assessed that the Federal Reserve decided to raise the rate after considering the robustness of the US economy, employment conditions, persistent inflation, the recent rise in oil prices and geopolitical uncertainties," the finance ministry said.
"The participants also assessed that the rate hike will have a limited impact on financial markets as the adjustment has already been reflected in market prices," it added. The authorities' expectation of limited disruption rests on that pricing-in dynamic; the variable that remains open is the Fed's signaled possibility of a further increase later this year, alongside oil prices and geopolitical uncertainty.
According to the ministry, South Korea will work closely with relevant agencies to monitor the domestic financial and foreign exchange markets.
"The participants also assessed that volatility in the government bond market has been increasing due to changes in external conditions, including the US rate hike," the ministry said, adding that they agreed to take market stabilization measures if necessary. That standby commitment effectively frames what to watch next: whether the bond-market volatility under external pressure eases on its own or prompts the stabilization measures the authorities have said could be deployed.
Source: Korea Herald (Yonhap) — https://www.koreaherald.com/article/10876716
