Seoul, Dec 11 (IANS) The Federal Reserve’s latest interest rate cut was broadly in line with market expectations, but it is likely to adopt a more cautious policy stance going forward, a senior official of the South Korean central bank said on Thursday.
On Wednesday (U.S. time), the Fed lowered its benchmark lending rate by a quarter percentage point for the third consecutive meeting to the 3.5-3.75 percent range amid economic uncertainties, though policymakers were divided over the decision amid persistent inflationary pressure and a weakening labor market, reports Yonhap news agency.
“The decision was in line with what the market had anticipated, but considering the widening divergence of views within the Fed and Chair Jerome Powell’s remarks, U.S. monetary policy is expected to become more cautious,” Bank of Korea (BOK) Deputy Gov. Park Jong-woo said while presiding over a market assessment meeting.
During a press conference after the rate-setting meeting, Powell said the Fed is “well positioned to wait to see how the economy evolves” and that the future policy path will be data-dependent, though a rate hike is not “anybody’s base case at this point.”
Park noted that several external risk factors remain, including a possible rate hike by Japan, signs of policy shifts in the European Union and Australia, concerns about fiscal soundness in major economies and lingering uncertainties surrounding U.S.-China trade negotiations.
“We remain vigilant and are closely monitoring market conditions, as external risk factors continue to persist,” he added.
The third U.S. rate cut since September has narrowed the interest rate gap between South Korea and the United States to as low as 1.25 percentage points, as the BOK held its benchmark rate steady at 2.5 percent during its latest meeting last month to safeguard financial stability.
Holding a separate meeting, the finance ministry, the BOK, the Financial Services Commission and the Financial Supervisory Service vowed to continue close market monitoring, noting that diverging monetary policy paths among major economies and widening rate differentials could heighten volatility.
“The U.S. is expected to continue its monetary easing cycle, while Japan is widely projected to raise its policy rate soon, adding to uncertainty in global markets,” the finance ministry said in a release.
“Authorities will maintain a 24-hour joint monitoring framework for financial and foreign exchange markets and will respond in a timely manner when necessary through close interagency coordination,” it added.
—IANS
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