Government: "Impact of US FOMC Limited... Sufficient Government Response Capacity"

Macroeconomic and Financial Meeting

Lee Ok-won, First Vice Minister of Strategy and Finance, is speaking at the Macroeconomic and Financial Meeting held at the Bankers' Hall in Jung-gu, Seoul on the morning of the 17th. 2021.6.17 Photo by Yonhap News

[Sejong=Asia Economy Reporter Son Seon-hee] On the 17th, the government commented on the Federal Reserve (Fed) of the United States, the central bank, announcing a shift in monetary policy direction, including advancing the timing of interest rate hikes, stating, "In the international financial market, changes in the Fed's forward guidance have been somewhat hawkishly interpreted, resulting in some risk-averse phenomena such as stock price declines, interest rate increases, and dollar strength," but also evaluated that "the fluctuations were relatively limited as the market perception was that it did not deviate significantly from expected levels." The government emphasized, "Our capacity to respond is sufficient."

Lee Eok-won, the 1st Vice Minister of Strategy and Finance, held a macroeconomic and financial meeting at the Bankers Hall in Jung-gu, Seoul, in the morning, saying, "Due to the FOMC results, volatility in the global financial market has somewhat increased, so our financial market may be partially affected by the global market," but added, "We need to respond with confidence in our economy, calmly and rationally."

The U.S. Federal Reserve held the Federal Open Market Committee (FOMC) meeting the previous day (local time) and announced two interest rate hikes by 2023. This changed the previous outlook of maintaining zero interest rates until 2023 by advancing the timing of rate hikes. While maintaining the current quantitative easing scale (USD 120 billion per month), the Fed expressed its intention to continue discussions on tapering asset purchases.

In this regard, the government repeatedly emphasized that Korea's economic capacity to respond is sufficient, citing ▲ solid fundamentals ▲ external credibility ▲ sufficient foreign exchange reserves as the basis.

Vice Minister Lee said, "The country's default risk (CDS) premium, a representative indicator of external credibility, remains at the lowest level since the 2008 global financial crisis (18 basis points)," and added, "International credit rating agencies such as Standard & Poor's (S&P) and Moody's maintain the highest-ever sovereign credit ratings." Furthermore, he emphasized, "As of last month, foreign exchange reserves reached a record high of USD 456.46 billion. Not only have we expanded new market stabilization measures such as establishing a foreign currency liquidity supply network through repurchase agreements, but with the recent extension of the Korea-U.S. currency swap, we maintain stronger market response capabilities than ever before."

Vice Minister Lee explained, "The inflation originating from the U.S. and the recently mentioned risk factors related to tapering differ from the sudden tapering during the past global financial crisis that caused unforeseen market shocks," and added, "It is necessary to consider that the Fed has sufficiently communicated with the market, allowing for adequate prediction and adaptation so far."

However, he stated, "Nonetheless, uncertainty about the ripple effects that may arise during the process if the monetary policy stance actually shifts still remains," and "We will closely monitor related trends and respond proactively and systematically."

Officials from the Financial Services Commission, Bank of Korea, Financial Supervisory Service, and the International Financial Center attended the meeting.