South Korea braces for ‘perfect storm’ in financial market

Electronic boards in Hana Bank’s trading floor in Seoul show the Kospi price and the earned dollar exchange rate on Thursday. (Yonhap)

South Korean financial authorities on Thursday warned of a “perfect storm” approaching the national economy, while pledging to inject liquidity into financial institutions to protect them from growing risks, if needed.

The concerns come as the U.S. Federal Reserve’s aggressive rate hikes, strong dollar trend, high inflation and persistent global supply chain bottlenecks rattled the Korean market.

“Some experts are comparing the current economic state to the oil shock (in the 1970s) when the world was suffering from inflation and an economic downturn at the same time,” Financial Supervisory Service Governor Lee Bok-hyun said during a briefing. a meeting with senior economic officials. think tanks in Seoul.

“This time we could face a more dangerous crisis with the global value chain more tightly linked – it could lead to an unprecedented perfect storm,” he added.

To counter unexpected risks, Lee has pledged to adopt various supervisory measures for financial institutions, including regulations on the measurement of soundness ratio.

In order to better respond to unexpected risks, Lee pledged to strengthen supervision of financial institutions “by actively employing various means, including soundness ratio measurement,” he said.

Strengthening foreign exchange liquidity management of local financial firms will be another key task for financial authorities here, Lee noted, while pledging to strengthen any related oversight. Rate hikes and the decline in the value of the Korean won could lead to a stalemate in the money and corporate bond markets, he added.

Echoing Lee’s concerns, Financial Services Commission Vice Chairman Kim So-young said Thursday they would look for ways to preemptively funnel cash to financial institutions if needed. They pledged to change the direction of Korea Deposit Insurance Corp. — a state-run organization that helps insolvent financial firms through loan extensions and fund deposits — to clean up after indebted businesses, preemptively preventing their demise.

“We’re going to take a cue from the precautionary finance systems used in the United States and the European Union and pursue the case,” Kim said at a meeting of the financial risk management task force of officials. FSC, FSS and KDIC.

The South Korean financial market and its borrowing rate were affected by waves from the US Fed’s decision to raise its interest rate by 0.75 percentage points in the latest decision to tighten monetary policy and control its strongest inflation since 1981. This is the strongest rate hike since November 1994.

The Bank of Korea’s benchmark interest rate currently stands at 1.75%, the result of five rate hikes since August last year, when the rate was at a record high of 0.5%. for more than a year.

The Kospi, Korea’s key stock index, dipped below 2,400 points for the first time in 19 months last week and traded at 2,327.73 by 2 p.m. Thursday, down 0, 63% compared to the previous close.

The won-dollar exchange rate broke above the 1,300 won level for the first time since July 14, 2009 at 1,302.9 won at some point on Wednesday, raising concerns among onlookers over the sharp drop in value Korean currency.

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