Financial chiefs call for 'external credibility' at New Year's event

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Financial chiefs call for 'external credibility' at New Year's event

Published: 03 Jan. 2025, 19:34

PARK EUN-JEE
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Audio report: written by reporters, read by AI

The heads of financial regulators, the central bank and major commercial banks pose for a photo at a New Year event on Jan. 3 in central Seoul, including Bank of Korea Gov. Rhee Chang Yong, fifth from right, Financial Services Commission (FSC) Chairman Kim Byoung-hwan, sixth from right, and Financial Supervisory Service (FSS) Gov. Lee Bok-hyun, eighth from right. [YONHAP]

The possibility of a downgrade to Korea's sovereign credit rating has emerged as a primary threat, prompting the country’s financial chiefs to call for the importance of “external credibility.”

The heads of financial regulators, central bank and major commercial banks gathered at a New Year event, bringing together Bank of Korea Gov. Rhee Chang Yong, Financial Services Commission (FSC) Chairman Kim Byoung-hwan and Financial Supervisory Service (FSS) Gov. Lee Bok-hyun.

In the beginning of the domestic political turmoil fueled by the Dec. 3 martial law declaration, global credit rating agencies like Standard & Poor's Global Ratings reassured that Korea’s fundamentals remain resilient. But as the political crisis is far from over, following a round of impeachments against President Yoon Suk Yeol and then Prime Minister Han Duck-soo, uncertainty has grown at a rapid pace.

The central bank chief noted that the country is at a moment where external views on its economic prospects matter most.

“While it is important to explain what we are doing and the work we are engaged in, it is paramount for now to consider how we are perceived internationally,” Rhee said during his speech.

He implied that his assessment of the country's economy has turned somewhat negative.

“The evaluation of the country has evolved significantly — from the early stages of this situation to the present — affected by changing circumstances and shifting international perspectives."

Rhee said that the central bank will flexibly implement monetary policy, calibrating the pace of its rate cuts while closely monitoring developments of risks at home and abroad.

In November, the bank slashed its benchmark interest rate by a quarter percentage point for the second consecutive session to 3 percent due to the country's slowing economy and ahead of the incoming Trump administration in the United States.

It marked the first back-to-back rate reduction since February 2009, when the country was reeling from the aftermath of the global financial crisis the previous year.

The BOK is scheduled to hold rate-setting meetings later this month and again next month following President Yoon Suk Yeol's brief imposition of martial law and subsequent impeachment.

The Korean won sank to its weakest point in more than a decade against the U.S. dollar. A deadly airplane crash is also negatively affecting already feeble consumer spending.

Against this backdrop, the Finance Ministry expects the economy to grow 1.8 percent this year, slowing from last year's estimated 2.1 percent expansion. This year's growth estimate is also lower than its earlier projection of 2.2 percent.

Rhee also reiterated his support for acting President Choi Sang-mok over his recent appointment of two justices to the Constitutional Court of Korea, insisting that his decision may have been hard but was also inevitable for the economy.

FSC Chairman Kim and FSS chief Lee said that the final regulators will focus on limiting the size of household debt by tightening related standards while expanding financial support for smaller merchants.

Acting President Choi Sang-mok, center, poses for a photo with U.S. Ambassador to Korea Philip Goldberg, left, and Xavier Brunson, commander of U.S. Forces Korea, at a government building in central Seoul on Jan. 3. [YONHAP]

In the meantime, acting President and Finance Minister Choi Sang-mok met with the top U.S. envoy and the chief of U.S. Forces Korea in an effort to underscore the strong Korea-U.S. alliance despite the ongoing political turmoil.

Choi's meeting with U.S. Ambassador to Korea Philip Goldberg and Gen. Xavier Brunson came less than a week after he'd assumed the interim leadership role.

“Despite the challenging situation, we will unwaveringly uphold diplomatic and security policies based on the strong alliance between South Korea and the United States,” Choi said during the meeting, according to his ministry. Choi also serves as deputy prime minister for economic affairs.

“We ask for proactive mutual efforts to maintain our diplomatic achievements, including cooperation between South Korea and the United States, as well as ties among Seoul, Washington and Tokyo,” Choi added.

Choi also expressed gratitude to Goldberg for his contributions to developing the alliance over the past two years and five months and asked him to continue showing support for bilateral cooperation even after his term ends later in the month.

The acting president congratulated Brunson on his inauguration late last month as well, asking him to play a key role in further advancing the alliance.

In response, Goldberg and Brunson reaffirmed Washington's unwavering support for Seoul's democratic system and the alliance, as well as its ironclad commitment to defending South Korea, the Finance Ministry said.

BY PARK EUN-JEE, YONHAP [[email protected]]