Finance, Monetary, and Financial Leaders: "Urgent Price Stability... Efforts to Prevent Spread of Inflation Expectations"

Deputy Prime Minister Choo Kyung-ho Meets with Governor Lee Chang-yong
Market Check After US 'Giant Step'
"Monetary Policy Focused on Inflation"

Lee Bok-hyun, Governor of the Financial Supervisory Service (left), Choi Sang-mok, Senior Secretary for Economic Affairs, Choo Kyung-ho, Deputy Prime Minister and Minister of Economy and Finance, Lee Chang-yong, Governor of the Bank of Korea, and Kim So-young, Vice Chairman of the Financial Services Commission, are posing for a commemorative photo at the emergency macroeconomic financial meeting held on the 16th at the Bankers' Hall in Jung-gu, Seoul. Photo by Moon Ho-nam munonam@

As the U.S. Federal Reserve (Fed) took an 'ultra-aggressive' step by raising the benchmark interest rate by 0.75 percentage points, the heads of fiscal, monetary, and financial authorities gathered on the 16th to assess the market situation and agreed to actively cooperate in response to the potential expansion of uncertainties in the financial market.

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, Bank of Korea Governor Lee Chang-yong, Financial Services Commission Vice Chairman Kim So-young, Financial Supervisory Service Governor Lee Bok-hyun, and Presidential Office Senior Secretary for Economic Affairs Choi Sang-mok held an emergency macroeconomic and financial meeting at the Bankers' Hall in Jung-gu, Seoul, to discuss these matters.

This was the first macroeconomic and financial meeting convened by the heads of fiscal, monetary, and financial authorities in four months since February, and the first under the new government. Originally, the meeting was scheduled to be chaired by the first vice minister of the Ministry of Economy and Finance, but considering the recent expansion of instability in the financial and foreign exchange markets, it was elevated to be chaired by Deputy Prime Minister Choo.

Deputy Prime Minister Choo and Governor Lee agreed that price stability is the most urgent issue.

Immediately after the meeting, Deputy Prime Minister Choo said, "We shared the recognition that the current economic situation is a complex crisis due to the Fed's large-scale interest rate hikes, the prolonged Ukraine conflict, and supply chain disruptions, and that difficulties will persist for a considerable period." He added, "As the acceleration of U.S. interest rate hikes is becoming a reality, we reached a consensus on the need for an emergency response."

He continued, "We will strengthen multifaceted efforts including monetary policy focused more on price stability, reducing cost burdens on the supply side, and preventing the spread of inflation expectations."

Since the government and the Bank of Korea mentioned active monetary policy, there is speculation that the Bank of Korea may take a 'big step' by raising the benchmark interest rate by 0.50 percentage points at the Monetary Policy Board meeting next month.

Regarding this outlook, Governor Lee said, "There are still 3 to 4 weeks until the next Monetary Policy Board meeting, so many changes could occur. I think it is a matter to decide after observing the market reactions until then."

On the possibility of holding an emergency Monetary Policy Board meeting in August or September, when no regular meetings are scheduled, to raise the benchmark interest rate, he responded, "We need to see the market situation. It has not been considered yet."

They also explained that, regarding the foreign exchange market, they will maintain special vigilance against excessive volatility of the Korean won and strive to prevent intensified herding behavior caused by psychological overreactions.

Deputy Prime Minister Choo said, "If the bond market reacts excessively, the government will implement emergency buybacks and the Bank of Korea will conduct simple purchases of government bonds at an appropriate time," adding, "We plan to thoroughly inspect the liquidity and soundness of financial companies, as well as the vulnerable links among financial sectors, to ensure thorough prevention of systemic risks."