On October 29, Deputy Prime Minister and Minister of Finance and Economy (MOFE) Lee Hyoung Il chaired an Expanded Meeting on Macroeconomic and Financial Stability[1] with relevant authorities at the Korea Federation of Banks Building. The meeting reviewed recent developments in global financial markets and their impact on Korea’s financial markets following the U.S. Federal Open Market Committee’s (FOMC) policy rate decision and discussed policy responses.

The following are the key messages from DPM Lee’s remarks.

[U.S. FOMC Decision and Global Financial Markets]

The U.S. Federal Reserve (Fed) kept its policy rate unchanged at 3.75 – 4.00 percent at its FOMC meeting overnight.

The decision is seen as an effort to assess the future course of monetary policy while maintaining its commitment to price stability and evaluating the impact of September’s rate hike and incoming economic data.     

With long-term interest rates remaining elevated in the U.S. and other major economies, earnings and investment outlooks for leading technology companies, along with movements in global oil prices, are contributing to increased volatility in domestic and global financial markets.

The potential market impact of changes in the composition of the U.S. Congress following next week’s midterm elections, as well as shifts in U.S. foreign policy resulting from changes in the political landscape, also needs to be closely monitored.

The government will work closely with relevant authorities to monitor the impact of changes in U.S. foreign policy, global oil prices, and global capital flows on domestic financial and foreign exchange (FX) markets, and respond promptly when necessary.

[Future Policy Directions]

The domestic stock market has experienced heightened volatility, with repeated sharp declines and rebounds amid shifting global interest rate expectations, geopolitical uncertainties in the Middle East, and concerns over the profitability of AI investments and the outlook for the semiconductor industry.

Nevertheless, the Korean economy continues to demonstrate solid fundamentals, with GDP growing by 1.0 percent quarter on quarter in the third quarter and economic growth projected to reach the mid-3 percent range this year.

The Korean Treasury Bond market has shown signs of stabilization, with yields declining following the announcement of a reduction in issuance volume for October. However, external uncertainties persist, including the U.S. midterm elections and fiscal concerns in France. The government will closely monitor the risk of these uncertainties spilling over into the Korean Treasury Bond market and carefully review issuance volume for November. If necessary, market stabilization measures, including emergency buybacks of Korean Treasury Bonds, will be implemented in a timely manner in close coordination with relevant authorities.

At today’s meeting, the impact of rising lending rates on vulnerable borrowers will be assessed.

As recent interest rate increases are reflected in lending rates with a time lag, the debt repayment burden on vulnerable borrowers is growing.

To alleviate this burden, the government will implement the previously announced support measures as planned, while continuing to monitor the impact of changing financial market conditions on vulnerable borrowers and the financial sector and preparing additional measures as needed.

A roadmap for shortening the equity settlement cycle from the current T+2 to T+1 will also be discussed today.

Shortening the settlement cycle is an important initiative that can reduce settlement-related risks and improve the efficiency of the use of funds.

However, ensuring a smooth transition requires careful consideration of the readiness of financial investment firms and domestic and foreign investors, settlement and FX liquidity, system stability, and progress toward shorter settlement cycles in major Asian economies.

Starting next week, relevant institutions, including the Korea Exchange and Korea Securities Depository, will seek extensive feedback from market participants, including financial investment firms and domestic and foreign investors, on the draft roadmap for the transition to T+1 settlement.

Please refer to the attached files.