Finance Ministry pledges continued vigilance after Fed decision

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Finance Ministry pledges continued vigilance after Fed decision

Published: 15 Jun. 2023, 16:32

Finance Minister Choo Kyung-ho, second from right, speaks at a meeting held in central Seoul Thursday after the Federal Reserve held the rate steady for the first time after 15 months of hikes. [MINISTRY OF ECONOMY AND FINANCE]

Korea will stay vigilant as uncertainties in future monetary policy operations remain, Finance Minister Choo Kyung-ho said Thursday.

The remarks followed the U.S. Federal Reserve's Federal Open Market Committee (FOMC) decision to hold rates steady at its first meeting in 15 months on Wednesday.

The latest "decision is seen as not deviating much from government and market expectations," Choo noted in a meeting with financial regulators.

"But since uncertainties remain on the future path of monetary policy of key countries, like the United States, the government will thoroughly monitor the financial markets inside and outside the country with high alert and strengthen supervision over weaknesses."

Federal Reserve Chairman Jerome Powell walks from a news conference in Washington, Wednesday, May 3, 2023, following the Federal Open Market Committee meeting. [AP/YONHAP]

A unanimous vote of the FOMC left the federal funds rate at the existing target range of between 5 and 5.25 percent.

Choo added Korea’s financial market is “generally stable” and assured that lending will experience a soft landing.

He noted that net purchases of Korean stocks by foreign investors on expectations of a recovery in the chip sector have pushed the Kospi above 2,600 points for the first time in around a year.

The won has also stabilized against the dollar, trading in the high 1,200 won range, he added.

The government has extended maturity extension and payment deferment programs for the self-employed and small and medium-sized enterprises, introduced in April 2020, to help challenges brought by the Covid-19 pandemic.

The finance minister noted the rising delinquency rate centered on non-commercial banks.

Potential loan defaults and the weak business environment for the self-employed require the government to thoroughly monitor the overall financial market and take timely preemptive measures, Choo added.

Federal Reserve Chairman Jerome Powell’s rejection of a rate cut within the year and suggested increases in the Fed's "dot plot" should be noted, said Bank of Korea Senior Deputy Governor Lee Seung-heon on Thursday.

The dot plot maps out policymakers’ expectations for where interest rates are headed in the future.

The updated dot plot published Wednesday showed most policymakers are projecting two additional quarter percentage point increases this year that would place the policy rate between 5.5 and 5.75 percent.

Lee added uncertainties in the financial market could grow given how central banks in some key countries, like Australia and Canada, have resumed rate increases.

"We have raised our policy interest rate by five percentage points, and we've continued to reduce our security holdings at a brisk pace,” Powell said during a press conference following the rate decision. "We've covered a lot of ground, and the full effects of our tightening have yet to be felt,"

But he warned that "nearly all committee participants view it as likely that some further rate increases will be appropriate this year."

The announcement came as inflation continues to slow.

The U.S. consumer price index in May rose at the slowest pace on year since March 2021.

Inflation was 4 percent that month from a year earlier, and up 0.1 percent on month.

The Bank of Korea’s next rate-setting meeting is scheduled for July 13. It has kept the rate steady in the last three meetings.

The Kospi closed down 0.40 percent and Kosdaq up 0.71 percent Thursday.

BY JIN MIN-JI [jin.minji@joongang.co.kr]