Finance Minister Choi Sang-mok said Thursday the government will work closely with the Bank of Korea and swiftly take market stabilization measures if necessary, as the US Federal Reserve cut its interest rates for the first time in over four years.
"Following the Fed's monetary policy pivot, the market is moving away from a complex global crisis, which was triggered by excessive liquidity supplied to cope with the pandemic, as well as shocks to the global supply chain caused by the war between Russia and Ukraine," Choi said.
"Overnight, the global financial markets remained relatively stable as expectations of a large rate cut were already reflected," Choi added.
The finance minister said the government will operate a monitoring system on the global market with related institutions amid lingering overseas uncertainties and implement contingency plans when necessary.
South Korea will also continue to thoroughly monitor household debt and other risks in the property market, the minister added.
"On the back of the transition in the monetary policies of major countries, the government will also speed up efforts to revitalize domestic consumption and stabilize the livelihoods of the people," Choi said.
The Fed's new median economic projections showed that the federal funds rate could be cut to 4.4 percent by the end of this year -- a hint that the Fed may further lower the rate later this year.
In a separate meeting, the head of the Financial Supervisory Service (FSS) called for efforts to prepare for potential risks stemming from rate cuts, noting at least three recent US rate reduction cycles out of the total seven had led to economic downturns.
FSS chief Lee Bok-hyun stressed the need to maintain the soundness of the foreign exchange market, pointing to the possibility of what he called a "sudden outflow of capital" due to a gap between economic indicators and market expectations in the process of a shift in monetary policies of major economies.
"For our economy to leap forward at a time when the global market stands at the start of a rate cut cycle, financial firms must be prepared to supply sufficient funds to productive industries," he was quoted as telling the meeting held at the FSS headquarters.
Lee also stressed the need to "firmly maintain efforts to control household debts and prepare to take macro-prudential steps in a timely manner when necessary," according to the financial regulator. (Yonhap)
