Deputy Prime Minister Choi Sang-mok presided over the Emergency Meeting on Macroeconomic and Financial Stability[1] on March 21 in Seoul to review the U.S. Federal Open Market Committee (FOMC)’s decision to maintain interest rates and its implications on the financial markets at home and abroad as well as government’s responses.

At the FOMC meeting, the Federal Reserve (Fed) determined to keep its benchmark rate on hold (a range of 5.25%-5.5%) for the fifth consecutive time and maintained its projection for 75 basis point rate cut this year. 

The Fed Chair Jerome Powell pointed out during the press conference that the interest rate is at its peak, noting that it would be appropriate to start a policy shift at some point this year.

As a result, global financial markets have interpreted the meeting results as a sign of easing monetary policy, leading to an increase in stock prices and a drop in Treasury yield in the U.S., and the dollar index.

Meeting participants assessed the FOMC’s decision as contributing to preserve stability in global financial markets. However, as the possibility of increased volatility cannot be ruled out in the recent circumstances where monetary policy differentiation in major countries such as the Bank of Japan and the Fed has become apparent, they agreed to closely cooperate to respond among relevant institutions.

In addition, they viewed that the recent financial and foreign exchange markets in Korea have generally been on upward trends; the stock market has seen an overall improvement, driven by factors such as the steady inflow of foreign investment in securities due to the government’s efforts to promote the Corporate Value-up initiative. With exchange rates showing a similar trend with those of major countries, corporate bonds and short-term interest rates have continued to remain stable as well.

Also, participants all agreed that potential risks related to non-bank financial institutions and real estate project financing (PF) are adequately manageable.

As for non-bank financial institutions, although there has been a slight increase in delinquency rates owing to the aftermath of interest rate hikes, they still remain below historical averages and capital ratios significantly exceed regulatory requirements, suggesting that the institutions possess ability to absorb losses.

Despite a slight increase in loan delinquency rates, a soft landing is on track in the real estate PF by the government providing normally-managed projects with liquidity in a timely manner, while encouraging those with insufficient viability to restructure. It was recognized by all that as the financial sector itself can adequately bear the situation, the likelihood of risks transferring to other sectors is extremely limited.

Along with it, the government commits to proactively prepare measures to facilitate a smoother and orderly soft landing going forward. To this end, the government will expand the guarantee size for PF loans and broaden the scope of support for PF normalization funds to alleviate funding constraints on-site. In addition, the government will provide support to step up market-driven restructuring through revisions to business viability assessment criteria and amendments to agreements with lenders.