FSS Chief Says BOK Rate Hike Could Heighten Market Volatility

Lee Chan-jin, governor of South Korea's Financial Supervisory Service, said on July 16 that the Bank of Korea's interest-rate increase could further heighten financial-market volatility and called for thorough preparedness.

The Financial Supervisory Service held a financial conditions review meeting chaired by Lee that day to assess market trends and domestic and external risks following the Bank of Korea's 0.25 percentage-point increase in the benchmark rate.

Lee said the Monetary Policy Board's rate decision was in line with market expectations. But with volatility in the domestic stock market already elevated, unrest in the Middle East and the possibility of further US rate increases could amplify swings in financial markets, he said.

He also instructed officials to closely examine sector-specific risks from higher rates, including tighter corporate funding conditions and heavier repayment burdens for vulnerable borrowers.

The FSS said it will review whether higher market rates are making it more difficult for companies to raise funds and support smooth financing through banks and other financial institutions. It also plans to assess the impact of rising rates on debt-servicing burdens for mid- to low-credit borrowers, small business owners and vulnerable companies, while supporting stable provision of productive and inclusive financing by banks.

The regulator said it will strengthen preemptive oversight of financial firms' soundness and prepare for the possibility that retail-investor losses could widen because of forced selling as stock-market volatility rises. It plans to monitor trends in margin loans and unsettled trades at brokerages and respond actively if warning signs emerge.

It also said it will closely monitor exchange-rate movements and trading volume following the shift to 24-hour foreign-exchange market trading, while continuously checking financial firms' foreign-currency funding and management conditions.

Ko Jung-sam, Hankyung.com reporter jsk@hankyung.com