Government says US rate hike could increase volatility in bond market, vows measures if needed

The government has decided to monitor the impact of the U.S. Federal Reserve's base rate hike on financial and foreign exchange markets and implement market stabilization measures if excessive concentration occurs in the treasury bond market.

Deputy Prime Minister Koo Yun-cheol held a joint 'expanded macroeconomic and financial meeting' with relevant institutional investors at the Government Complex in Seoul on the morning of the 17th to review global financial market trends following the U.S. Federal Open Market Committee's (FOMC) interest rate hike decision made early that day (Korean time).

Attendees assessed that the Federal Reserve raised its policy rate considering robust economic and employment conditions, high inflation levels, recent increases in international oil prices, and expanding geopolitical uncertainties.

They noted that since this rate hike had already been priced into the market and overall financial market conditions remain stable, the impact of this increase on the market would be limited.

Attendees also plan to examine the Federal Reserve's strengthened commitment to price stability, the possibility of additional interest rate hikes within the year, and upcoming monetary policy decisions by the Bank of Japan (BOJ) and the Bank of England (BOE) scheduled for this week. They agreed to closely monitor international oil prices and global capital flows, coordinate closely with relevant institutional investors, and assess impacts on domestic financial and foreign exchange markets.

Attendees evaluated that volatility in the treasury bond market has expanded due to changes in domestic and external conditions, including recent interest rate hikes by the Federal Reserve. Given that such uncertainties are expected to persist into the future, they decided to closely monitor treasury market trends and implement necessary market stabilization measures if excessive concentration occurs, ensuring full preparedness for market stability.

Additionally, the government will review recent trends in rising loan interest rates, remain cautious about the possibility of increased repayment burdens on vulnerable borrowers due to rate hikes, and proceed with support measures announced for such borrowers. If needed, supplementary plans will also be developed.

The impact of recent changes in domestic and external economic conditions, including a current account surplus, on market liquidity was also reviewed. Attendees plan to closely monitor related capital flows and liquidity conditions and continue assessing impacts on financial and asset markets.

Deputy Prime Minister Koo expressed gratitude to the heads and staff of the Bank of Korea, Financial Services Commission, and Financial Supervisory Service for their joint efforts in maintaining stability in financial and foreign exchange markets thus far. He urged the economic and financial team to continue responding swiftly and organically based on the cooperation framework established so far.