Fed's rate hike to have limited impact on S. Korean market: finance minister

All News 08:06 July 28, 2022

SEOUL, July 28 (Yonhap) -- South Korea's finance minister said Thursday the U.S. Federal Reserve's latest rate hike is expected to have a limited impact on the domestic financial market as the outcome is in line with market expectations.

Finance Minister Choo Kyung-ho made the remarks during his meeting with the central bank chief and heads of the country's financial regulators to discuss the fallout of the Fed's "giant step" rate increase on the market and economic situations.

After a two-day policy meeting that ended Wednesday (U.S. time), the U.S. central bank hiked the federal funds rate by 75 basis points for the second straight month to curb inflation. The move raised its key rate to a target range of 2.25-2.5 percent.

The decision pushed the U.S. interest rates above South Korea's benchmark interest rates for the first time since February 2020. South Korea's base rate stands at 2.25 percent.

"The Fed's decision well matched market expectations. As global financial markets well digested the Fed's rate hike overnight, it is expected to have a limited impact on the South Korean market," Choo said.

The minister dismissed concerns that the widening gap of borrowing costs between the United States and South Korea could trigger foreign capital outflows.

"In the previous three cases where the U.S. interest rates exceeded Korea's, foreigners were net buyers of South Korean securities," he said. "South Korea's economic fundamentals and its proper responses to global economic issues more affect cross-border capital movements."

Capital flights are feared to further weaken the Korean currency against the U.S. dollar, putting upward pressure on inflation. The won has slid more than 9 percent per dollar so far this year.