The Bank of Korea warned Tuesday of “increased volatility” as global markets brace for future hikes from the U.S. Federal Reserve.
“There is a high chance of increased volatility whenever the U.S. Federal Reserve makes a policy rate decision and the global finance and foreign exchange market has to digest it,” BOK Governor Rhee Chang-yong, according to a text message from the central bank.
Rhee said Powell’s comments on the U.S. central bank’s plans to continue hiking rates in September were “not much different” from South Korea’s stance during the central bank’s August meeting.
The Bank of Korea will not be shifting its current monetary stance, but it will “closely monitor the Fed’s decision and its impact at home and abroad,” Rhee said.
At Jackson Hole last week, Rhee told Reuters it was unlikely for the BOK to end its rate hike cycle earlier than the Fed.
“We are now independent from government, but we are not independent from the Fed,” Rhee told Reuters. “So if the Fed continues to increase the interest rate, it will have a depreciation pressure for our currency.” Commenting on raising interest rates, Rhee said at that time: “Whether we can end earlier – I don’t think so.”
South Korean stocks saw a rebound on Tuesday, a day after the benchmark Kospi fell over 2% and the Korean won reached the weakest level in more than 13 years on Monday.
First spending cut in 13 years
South Korea’s government also announced Tuesday that it will be cutting annual government spending for the first time in more than a decade.
The finance ministry released its first budget proposal of 639 trillion won ($473 billion) for 2023 – it was 6% smaller than this year’s spending after two extra budgets and would mark the first annual decline since 2010 if there are no more supplementary budgets announced.
In a statement, the finance ministry said the nation is announcing a “total shift” in its fiscal stance “from expansionary to sound financing.”
