Korea to closely monitor impact of upcoming U.S. midterm elections

Korean financial authorities said Thursday they will closely monitor the impact of the U.S. midterm elections on financial markets and take immediate countermeasures if necessary in the event of sharp market fluctuations.

Finance Minister Lee Hyoung-il held discussions on the issue with Bank of Korea (BOK) Gov. Shin Hyun-song, Financial Services Commission Chairman Lee Eog-weon and Financial Supervisory Service Gov. Lee Chan-jin after the U.S. Federal Reserve held its benchmark interest rate steady overnight.

The Fed decided to maintain the rate in the 3.75 to 4 percent range in a 10-2 vote. The decision left the gap between the key interest rates of Korea and the United States at up to 1 percentage point.

"The decision appears to reflect the Fed's continued focus on stabilizing consumer prices while assessing the impact of September's rate hike and other economic indicators to determine its future policy direction," Lee said.

Lee noted that earnings and investment outlooks for major technology firms, along with movements in global oil prices, are fueling volatility in financial markets at home and abroad.

"We also need to monitor the composition of the U.S. Congress following the midterm elections, changes in Washington's external policies amid the shifting political landscape and their impact on markets," the finance minister added.

Lee, however, said Korea's economic fundamentals remain sound, with its GDP advancing 1 percent on quarter in the third quarter.

The finance minister pointed out that the U.S. elections and fiscal instability in France may also adversely affect the government bond market, noting that Korea will work with relevant institutions to implement timely market stabilization measures, such as emergency bond buybacks, when necessary.

Separately, Lee said he would also discuss with the participants ways to shorten the stock settlement cycle from the current T+2 system to T+1.

"Shortening the settlement cycle is an important task as it can reduce related risks and improve the efficiency of fund management," Lee said, noting the government will gather opinions on the matter from market participants.

The BOK, meanwhile, said it will continue to keep a close eye on key market developments following the latest Fed decision.

"The Fed held its policy rate steady overnight, as expected. However, external risks persist due to lingering tensions in the Middle East, concerns over the fiscal soundness of major countries and uncertainties surrounding AI investment," BOK Senior Deputy Gov. Kwon Min-soo said in a separate statement.

Kwon added that the central bank will closely monitor developments in financial and foreign exchange markets, with the European Central Bank and the Bank of Japan also set to make rate decisions this week.

Yonhap