S. Korea Eyes Tighter Monetary Policy Amid Fed's Hawkish Stance

By Kang Yoon-seung

SEJONG, June 18 (Yonhap) -- Washington may shift toward a tighter monetary policy as the U.S. Federal Reserve underscored its commitment to taming inflation, South Korea's financial authorities said Thursday.

Finance Minister Koo Yun-cheol made the assessment alongside Bank of Korea (BOK) Gov. Shin Hyun-song, Financial Services Commission Chairman Lee Eog-weon and Financial Supervisory Service Gov. Lee Chan-jin as they discussed the outcome of the overnight Federal Open Market Committee (FOMC) meeting.

The U.S. Federal Reserve on Wednesday (U.S. time) held its benchmark interest rate steady in its first rate decision since Chair Kevin Warsh took office last month, with at least half of policymakers anticipating higher rates later this year.

The U.S. central bank decided unanimously to leave the rate unchanged at a range of 3.5 percent to 3.75 percent, marking its fourth consecutive pause.

The "dot plot" projection chart showed that nine of the 19 FOMC participants expected borrowing costs to be higher by year-end. Warsh did not submit a dot plot projection.

"The global financial market had expected the FOMC to hold rates steady. But it also perceived a hawkish stance from the U.S., as reflected in the Federal Reserve's commitment to price stability and the dot plot projection," Koo said.

Koo, however, noted that the South Korean financial and foreign exchange markets have experienced easing volatility due to the peace agreement between Washington and Tehran.

"The negotiations are expected to ease geopolitical tensions and stabilize energy supplies, lifting major uncertainties facing the South Korean economy," Koo said, noting the country nevertheless needs to remain vigilant until the Strait of Hormuz is fully reopened and other risks are fully addressed.

"We will remain vigilant and closely monitor market conditions, and take stabilization measures when necessary in a timely manner, amid lingering risks such as potential rate hikes by major economies and global economic uncertainties related to the AI-driven drive," he added.

In a separate meeting, BOK Deputy Gov. Ryoo Sang-dai also noted the overnight decision by the FOMC indicates a shift in the monetary policy stance of major economies.

"The Fed has hinted at raising rates to address inflationary pressures, following rate hikes by the European Central Bank and the Bank of Japan," Ryoo said.

"We plan to remain vigilant over a possible escalation of volatility in the financial and foreign exchange markets," he added.