BoK: "Market Reaction to US Rate Pause Diverges from Monetary Policy... Volatility May Increase"

[Image source=Yonhap News]

Amid the Federal Open Market Committee (FOMC) of the United States maintaining the benchmark interest rate, the Bank of Korea stated that expectations for monetary policy could change depending on future economic indicators.

On the morning of the 15th, the Bank of Korea held a 'Market Situation Review Meeting' chaired by Deputy Governor Lee Seung-heon to assess the international financial market situation following the FOMC results and the potential impact on domestic financial and foreign exchange markets.

As expected by the market, the US policy rate was held steady (5.00~5.25%) at this FOMC meeting. Despite the Federal Reserve's hawkish stance on future policy direction, US Treasury yields fell and the US dollar closed weaker due to market expectations that additional rate hikes may be limited to one more.

Deputy Governor Lee Seung-heon of the Bank of Korea explained, "Although the policy rate was held steady at this FOMC, it is necessary to note the possibility of additional rate hikes suggested by the upward revision of the year-end policy rate outlook in the dot plot and remarks made by Chairman Jerome Powell during the press conference, as well as the denial of the possibility of rate cuts within the year." He added, "Recently, major central banks such as Australia and Canada have resumed rate hikes, indicating a strengthening of monetary policy stances among key countries."

Deputy Governor Lee said, "The market's reaction shows some gap from this monetary policy stance, but as expectations for monetary policy may change depending on major economic indicators to be released in the future, volatility in domestic and international financial markets could increase. Therefore, we will closely monitor the related market situation."