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Seoul wary of effects from U.S. tapering

Policymakers pledge to take preemptive action against market volatility

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Published : 2014-01-10 20:13
Updated : 2014-01-10 20:13

Korea’s monetary policymakers on Friday said that risks in the financial market will still drag on this year due to several key undesirable factors at home and abroad.

After a meeting of finance-related ministries and agencies in Seoul, the senior officials said in a statement that “the U.S.’ ongoing scaling back of stimulus measures is projected to bring a big change to the global economy and financial environment.”

They also predicted that “uncertainties of the Japanese, Chinese and emerging markets will expand.”

The statement, led by Vice Finance Minister Choo Kyung-ho, was not in line with the forecast of Bank of Korea Gov. Kim Choong-soo, who said a day earlier that there are less uncertainties since the U.S. has clarified that the period for tapering of its quantitative easing would be one year.

The BOK chief linked the recovery in the U.S. with the globally upbeat growth outlook. He said that its stimulus-tapering policy would affect Korea “not negatively, but favorably.”

Unlike Kim, the policymakers including Choo and several others from financial regulatory agencies stressed that emerging countries’ financial markets have grown more volatile since the U.S. announced its tapering policy in December 2013.

Choo said the Finance Ministry and the Financial Supervisory Service will “bolster monitoring of domestic, and overseas financial markets, adding their focus would be possibly unstable capital in-and-out in the wake of the U.S. financial policies.

He also cited the Japanese yen’s sharp slide versus the Korean won as another risk factor.

“Domestically, there are still worries over consumer debt, companies’ potential insolvency as well as the fiscal soundness of financial firms,” he said.

Economists as well as policymakers warn that the U.S. tapering is expected to further increase Korea’s household borrowing costs and pose a systemic risk to the real economy due to an increase in interest rates worldwide.

Korean households, which have accumulated some 1 quadrillion won ($900 billion) of outstanding debt, are to see their repayment burden rise from possibly higher interest rates in the local market once the U.S. Federal Reserve begins normalizing its monetary policy.

At the meeting, the officials agreed that policymakers will take preemptive countermeasures against possible woes in the currency, stock and bond markets.

For an enhanced watch, they have decided to hold a monthly meeting of senior officials from the Finance Ministry, the FSS, the BOK and the Financial Services Commission.

On Thursday, the U.S. Federal Open Market Committee publicized its latest minutes, which hinted at tapering the two- or three-year-long quantitative easing policy by the end of this year.

By Kim Yon-se (kys@heraldcorp.com)

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