BOK: "Deep-sea-induced Volatility Up... Closely Monitoring Pace of US Rate Cuts"

Bank of Korea Reviews Market Conditions
Following Lunar New Year and U.S. FOMC Results

Yoo Sang-dae, Deputy Governor of the Bank of Korea, stated that the domestic ripple effects of increased volatility in the U.S. stock market caused by the China DeepSeek shock should be closely monitored. Uncertainties related to the timing and pace of interest rate cuts by the U.S. Federal Reserve (Fed) and the economic policy initiatives of the new U.S. administration remain high, so the plan is to maintain vigilance and carefully assess these risk factors.

On the 31st, Deputy Governor Yoo held a 'Market Situation Review Meeting' to review the international financial market situation following the results of the U.S. Federal Open Market Committee (FOMC) during the Lunar New Year holiday and discuss the potential impact on domestic financial and foreign exchange markets.

The Bank of Korea viewed the impact of monetary policy decisions by major countries, including the U.S. Fed, on international financial markets as limited. During the holiday period, central banks of Canada (January 28) and Europe (January 29) each cut policy rates by 25 basis points, but the U.S. Fed paused its three consecutive rate cuts since last September and kept the policy rate unchanged. Fed Chair Powell expressed a cautious stance at the post-FOMC press conference, indicating no rush to adjust rates going forward.

However, the China DeepSeek shock increased volatility in the U.S. stock market, and global risk aversion sentiment was strengthened due to uncertainties related to the new U.S. administration's tariff policies. Following DeepSeek’s announcement of a low-cost, high-performance AI model, major U.S. big tech companies’ stock prices sharply declined but later somewhat recovered due to positive earnings forecasts.

Deputy Governor Yoo said, "the FOMC results were evaluated as expected, so the market impact was not significant," but added, "given that U.S. stock market volatility, especially in the IT sector, expanded considerably during the holiday period, the domestic ripple effects must be closely monitored." He continued, "Uncertainties remain high regarding the timing and pace of the Fed’s rate cuts, the new U.S. administration’s economic policy implementation, and domestic political situations," adding, "we will maintain vigilance and carefully examine the development and impact of related risk factors."