Seoul: The Federal Reserve's recent decision to cut interest rates has prompted the Bank of Korea to anticipate a more cautious monetary policy stance from the U.S. central bank in the future. The rate cut, which aligns with market expectations, was announced by a senior official of the South Korean central bank on Thursday.
According to Yonhap News Agency, the Fed lowered its benchmark lending rate by a quarter percentage point for the third consecutive meeting, setting it within the 3.5-3.75 percent range. This decision comes amid ongoing economic uncertainties, with policymakers divided due to persistent inflationary pressures and a weakening labor market. Bank of Korea Deputy Governor Park Jong-woo remarked on the anticipated cautious approach, noting the varied opinions within the Fed and Chair Jerome Powell's comments on a data-dependent policy path moving forward.
During a press conference, Powell emphasized the Fed's readiness to observe economic developments, indicating that a rate hike is not currently expected. Park highlighted several external risks, such as a potential rate hike by Japan, policy shifts in the European Union and Australia, fiscal soundness concerns in major economies, and ongoing uncertainties in U.S.-China trade negotiations. He stressed the importance of vigilance and close monitoring of market conditions due to these external factors.
The recent U.S. rate cut has reduced the interest rate differential between South Korea and the United States to as low as 1.25 percentage points. The Bank of Korea maintained its benchmark rate at 2.5 percent during its latest meeting to ensure financial stability. In a separate meeting, the finance ministry, along with the BOK, the Financial Services Commission, and the Financial Supervisory Service, committed to ongoing market monitoring. They noted potential volatility due to diverging monetary policies among major economies and widening rate differentials.
The finance ministry indicated that while the U.S. is expected to continue its monetary easing, Japan may soon raise its policy rate, adding to global market uncertainty. Authorities plan to maintain a 24-hour joint monitoring framework for financial and foreign exchange markets and will respond promptly as necessary through coordinated interagency efforts.