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Vice finance minister pledges preemptive response to market volatility

Electronic board at the dealing room of the Hana Bank headquarters shows weakening indexes in the local capital and currency market during the trading session on Friday. (Yonhap)
Electronic board at the dealing room of the Hana Bank headquarters shows weakening indexes in the local capital and currency market during the trading session on Friday. (Yonhap)
SEJONG -- Vice Finance Minister Lee Eog-weon on Friday reiterated policymakers’ willingness to intervene promptly to stabilize the capital and currency markets.

During a meeting to take countermeasures against the US Federal Reserve’s monetary tightening, Lee said that “there is a high possibility that Korea’s financial and foreign exchange market will react sensitively to external factors for the time being.”

His remarks came after the Fed raised the US base rate by 50 basis points from 0.25-0.5 percent to 0.75-1 percent per annum on Wednesday (local time).

“As the international capital and currency markets have shown coupling to a high extent, the volatility of Korea’s financial market has also unavoidably expanded,” he said.

The vice minister mentioned the need for “preemptive countermeasures against a variety of risks” and “measures for market stabilization” in close coordination with relevant agencies.

This could mean that the government would seek to minimize volatility of the stock and won-dollar exchange market by mobilizing a variety of actions -- like state-led selling of dollar-denominated assets -- when external shocks hit indexes.

Nonetheless, Lee pointed out that the extent of volatility in exchange rates versus the US dollar and interest on government bonds has stayed at a similar level, held by major nations.

“Korea has posted its highest level of state creditworthiness in history,” he said. “The nation also has foreign reserves ($449 billion as of April), which are sufficient level to weather external shocks.”

His remark might mean that the local market would not eventually be susceptible to negative factors on the back of strong fundamental in economy.

The dollar closed at 1,272.7 won on Friday, up 6.4 won from a trading session earlier. The Kospi lost 1.23 percent from a session earlier to clsoe at 2,644.51.

The next rate-setting of the Bank of Korea’s monetary policy committee is scheduled for May 26. Korea’s benchmark interest rate has been set at 1.5 percent per annum since April 14.

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