FSS chief warns of heightened market volatility after Bank of Korea rate hike

Financial Supervisory Service chief Lee Chan-jin said Thursday that financial authorities must be fully prepared for a further expansion of market volatility following the Bank of Korea's benchmark interest rate hike.

The FSS convened a financial situation review meeting Thursday, chaired by Lee, to assess market developments and domestic and external risk factors following the Bank of Korea's Monetary Policy Board raising the benchmark interest rate by 25 basis points.

Lee said the rate increase was in line with market expectations, but warned that volatility in the domestic stock market had already risen and could intensify further amid instability in the Middle East and the possibility of additional US rate hikes.

In response, Lee directed the FSS to conduct a detailed review of risks across seven areas: monitoring corporate financing difficulties and supporting fund supply; examining the debt-repayment burden on vulnerable borrowers, including those with low to mid-tier credit ratings and small business owners; strengthening the financial soundness of institutions through loan delinquency rate management; encouraging small and mid-sized financial firms to build up liquidity; tracking trends in margin financing and unsettled trades at securities firms; managing the duration gap between assets and liabilities at insurance companies; and monitoring exchange rates and trading volumes following the around-the-clock opening of the foreign exchange market.

Lee particularly noted the need for continuous monitoring of exchange rate movements, as the Seoul foreign exchange market expanded its operating hours to a 24-hour schedule — from Monday at 6 a.m. through Saturday at 6 a.m. — effective July 6, replacing the previous 2 p.m. closing time.

Lee closed by saying the recovery momentum in the real economy needs to spread across the broader economy and financial sector, and called for close coordination among relevant authorities to maintain financial market stability and sound management of financial institutions.

The BOK's Monetary Policy Board held its policy direction meeting Thursday morning and raised the benchmark interest rate by 25 basis points, from 2.5 percent to 2.75 percent. It was the first rate increase by the BOK since Jan. 13, 2023, when it raised the rate from 3.25 percent to 3.5 percent — a gap of roughly three and a half years. It was also only the 28th policy meeting at which the board has adjusted rates.