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(LEAD) U.S. Fed's rate hike schedule creates room for S. Korea's monetary policy: BOK chief

Economy 10:50 December 20, 2018

(ATTN: ADDS financial watchdog's meeting in last 3 paras)

SEOUL, Dec. 20 (Yonhap) -- A slower rate hike schedule by the U.S. Federal Reserve may give South Korea greater leeway in terms of setting monetary policy in the new year, the head of the country's central bank said Thursday.

On Wednesday (U.S. time), the Fed raised its key interest rate for the fourth time this year to a range of 2.25 percent to 2.5 percent.

It also said it will raise the rate twice next year after reviewing global economic data and international financial markets.

"The rate hike and its scheduled adjustment have been widely expected," Bank of Korea (BOK) Gov. Lee Ju-yeol told reporters. "But a slower pace of U.S. monetary tightening will help the central bank here operate its monetary policy in a more flexible manner."

He said the central bank will keep closer tabs on the U.S. Fed's decisions in 2019 and do its best to minimize fallout from U.S. monetary normalization.

Although the BOK raised its policy rate to 1.75 percent last month as part of efforts to curb massive household debt, the rate difference between South Korea and the United States has now widened to 0.75 percentage point.

A far wider rate spread may spark an outflow of foreign funds from the South Korean financial market. Currently, more than 30 percent of the market capitalization of South Korea's benchmark KOSPI bourse is owned by foreign investors.

Bank of Korea (BOK) Gov. Lee Ju-yeol speaks to reporters at the BOK's headquarters in Seoul on Dec. 20, 2018. (Yonhap)

Separately, the Financial Supervisory Service (FSS) held a meeting earlier in the day to check local financial markets after the Fed's rate hike.

Yoo Kwang-yeol, FSS's first senior deputy governor, told the meeting that the volatility in financial markets rose because the Fed failed to quell concerns about tightening policy amid slowing global economic growth.

The FSS will deal firmly with "market disturbance" activities over the recent volatility in stocks and other assets, Yoo stressed.


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