(2nd LD) U.S. rate freeze to ease market uncertainty: vice minister
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(2nd LD) U.S. rate freeze to ease market uncertainty: vice minister

2015/09/18 14:16

(ATTN: ADDS more comments in paras 12-14; RECASTS para 15)

SEOUL/SEJONG, Sept. 18 (Yonhap) -- The U.S. Federal Reserve's decision to hold its key interest rate steady is expected to help alleviate continued uncertainty in the international financial market to some degree, a senior government official said Friday.

After a two-day policy meeting, the Federal Open Market Committee froze the interest rate on Thursday, citing a cooling global economy even as the U.S. economy grows steadily.

"The rate freeze is a factor that could ease market uncertainty to some degree, but financial volatility at home and abroad is likely to linger as it remains unclear when the Fed will start to raise interest rates," Vice Finance Minister Joo Hyung-hwan said at a macroeconomic and financial policy meeting in Seoul.

Vice Finance Minister Joo Hyung-hwan chairs the macroeconomic and financial policy meeting in Seoul on Sept. 18, 2015. (Yonhap) Vice Finance Minister Joo Hyung-hwan chairs the macroeconomic and financial policy meeting in Seoul on Sept. 18, 2015. (Yonhap)

To cope with international volatility, the official said the government will continue monitoring global economic conditions and the overall financial market.

"There is a need to be vigilant in regards to the foreign exchange liquidity situation," Joo said.

Considering the experience of the 2008 global financial crisis, the government will keep a special watch on foreign currency liquidity reserves though they have ample reserves.

"The government will closely monitor the country's credit spread and refinancing rate, and guide local financial firms to help them take a more conservative approach in managing liquidity," Joo said.

"Furthermore, we will continue to cope with risk factors, such as household debt, and beef up efforts to improve the fundamental makeup (of the country's financial market)," he added.

He emphasized that the recent move by global credit appraiser Standard & Poor's to mark up Seoul's sovereign ratings to AA- will help differentiate South Korea from other Asian economies that can allow it to better weather future uncertainties.

"At a time when many countries are facing difficulties amid external risks, like the case of Brazil and its downgraded ratings, the fact that South Korea's rating upgrade carries a lot of significance," he said. "The country has strong fundamentals to withstand any kind of shock."

   The early morning meeting chaired by Joo was attended by senior officials from the Bank of Korea, the Financial Services Commission, the Financial Supervisory Service, the Korea Center for International Finance and related agencies.

In a separate meeting on Friday, the chief of South Korea's central bank said the local financial market is likely to face lingering uncertainties in the short term, despite the U.S. rate freeze.

"U.S. Federal Reserve Chair Janet Yellen seemed to take a dovish stance, but short-term uncertainties will still weigh on the financial market," Bank of Korea Gov. Lee Ju-yeol said in the meeting with local bank heads in central Seoul.

"The Fed left open the possibility of a rate hike in October and December," he added.

The latest U.S. rate freeze is seen as having eased uncertainties over an early U.S. rate hike that had been forecast by analysts and other financial officials.

An increase in the U.S. rate is feared to heighten financial volatility and possibly cause an outflow of capital from emerging markets, which could pose a threat for South Korea, an economy driven mainly by exports.

With the expected risks that come with a U.S. rate hike, Seoul has been keeping close tabs on the situation, as well as the general direction of policy changes that may be pursued by the Fed later this year.