Government Reviews FOMC Impact... Cautious of Global Monetary Policy Divergence

Holding of the Macroeconomic and Financial Meeting Chaired by Choi Sang-mok

Choi Sang-mok, Deputy Prime Minister for Economic Affairs and Minister of Economy and Finance, is exchanging opinions with key attendees ahead of the '2024 Asia Future Business Forum' held on the 22nd at Lotte Hotel in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

The government announced that it will respond with vigilance to the differentiation in monetary policies among major global countries and the potential increase in market volatility following the Federal Open Market Committee (FOMC) decision to keep policy rates unchanged in June.

On the 13th, Choi Sang-mok, Deputy Prime Minister and Minister of Economy and Finance, held a 'Macroeconomic and Financial Meeting' via video conference from Astana, Kazakhstan, where he is on an official visit to three Central Asian countries. The meeting was attended by Lee Chang-yong, Governor of the Bank of Korea, Kim Ju-hyun, Chairman of the Financial Services Commission, and Lee Bok-hyun, Governor of the Financial Supervisory Service. They reviewed the impact of the FOMC's rate-hold decision on domestic and international financial markets and discussed response strategies.

At the FOMC meeting held overnight, the Federal Reserve Board (Fed) maintained the policy rate at 5.5% for the seventh consecutive time. In its statement, the Fed upheld its previous stance that rate cuts are not appropriate until there is greater confidence in achieving the inflation target. Committee members reduced their forecast for rate cuts this year from 75 basis points to 25 basis points. However, Fed Chair Jerome Powell mentioned in the press conference that the timing of rate cuts will be data-dependent and that the Fed is prepared to respond if inflation slows faster than expected.

The global financial markets viewed the FOMC outcome as somewhat hawkish but paid more attention to the slower U.S. Consumer Price Index (CPI) for May, announced last night Korea time, showing generally stable market conditions.

Participants in the Macroeconomic and Financial Meeting agreed that, amid ongoing uncertainty about the timing and magnitude of Fed rate cuts, the possibility of increased global financial market volatility due to differentiated monetary policies such as rate cuts by the European and Canadian central banks cannot be ruled out. Therefore, they decided to maintain vigilance and closely cooperate among relevant agencies.

Regarding the recent domestic financial market, it was assessed to be generally favorable, with continued net inflows of foreign securities funds and stability in corporate bonds and short-term interest rates in the money market.

Meanwhile, the participants agreed on the need to continuously expand external safety nets and to sustain policy efforts for capital market advancement. To this end, they plan to promptly prepare specific tax support measures reflecting public hearing results, such as reductions in corporate tax and dividend income tax to enhance corporate value, and easing inheritance tax burdens. Additionally, improvements to the short-selling system, including the establishment of an IT system, will be finalized soon.

Preparations are underway to smoothly implement the extension of foreign exchange market trading hours scheduled for next month. To prevent settlement failures and improve transaction convenience for foreigners investing in domestic securities, temporary won borrowing will be allowed not only through domestic banks but also through local correspondent banks.

Furthermore, aiming for inclusion in the World Government Bond Index (WGBI) in September, institutional foundations will be completed by opening an integrated government bond account on the 27th. Accessibility will be continuously enhanced by expanding the scope of Legal Entity Identifier (LEI) recognition and simplifying tax-exemption procedures for foreign investors in government bonds.