S. Korea well prepared to deal with U.S. monetary normalization

By Boram Kim

SEOUL, Nov. 20 (Yonhap) -- The South Korean economy is well-prepared to deal with fallout from the ongoing U.S. monetary normalization thanks to its stable financial system and solid growth, the head of an international organization said Tuesday.

The U.S. central bank earlier announced its monetary normalizing plan, steadily raising its fund rate to a range of 2 percent to 2.25 percent from near zero. And it is widely expected to lift the rate by a quarter percentage point in December.

At a time of rising interest rates, some emerging economies have been experiencing financial jitters as foreign investors pull their money out of certain countries.

Agustin Carstens, general manager of the Bank of International Settlements (BIS), said South Korea is strong enough and sufficiently prepared to get over the "unavoidable" shift of monetary policies started by the U.S. Federal Reserve.

"(Out of) countries that have been recipients of foreign capital, Korea stands out as one of the strongest," Cartens, who took the helm of the BIS in December last year, said at a press meeting in Seoul. "Korea has a very strong macroeconomic position."

He cited South Korea's well-controlled inflation, stable financial system and sufficient foreign reserves to buffer the impact of the U.S.-led monetary tightening.

"Even though we might see short term volatility, I'm very confident that Korea will be able to handle this process of ongoing monetary policies successfully," the former Mexican central bank chief said.

A higher U.S. interest rate will also influence the Bank of Korea (BOK), which has maintained the policy rate at 1.5 percent since November last year.

If the U.S. Fed increases its fund rate next month as planned, the Korea-U.S. rate gap will reach as much as 1 percentage point.

A widening rate spread could spark an outflow of foreign investment from South Korea, where foreigners hold more than 30 percent of all stocks in the market.

The BOK will hold its rate-setting meeting on Nov. 30.

brk@yna.co.kr
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