South Korea is worried current global financial turmoil could put an additional dent in Asia’s fourth-largest economy and plans next week to discuss ways to cushion any impact, the Finance Ministry said on Friday.

President Lee Myung-bak said global markets were in the process of removing uncertainty, while the Bank of Korea’s chief renewed his pledge to take aggressive action, such as extra cash injections into the domestic system, at the first signs of financial instability.

Local financial markets rebounded sharply after plunges on Thursday, extending their roller-coaster ride in line with Wall Street markets severely hit by high profile bankruptcies and emergency bail-outs in the U.S. financial industry.

“There are worries that the instability in financial markets could hurt the real economy. The government needs to look more closely into the situation and study possible ways to minimise any impact,” Finance Minister Kang Man-soo told a scheduled meeting of senior financial officials.

The finance ministry said in a statement after the meeting that officials would discuss ways to deal with the possible impact from global financial instability on South Korea’s domestic demand, exports and overseas construction orders.

Seoul’s stock market jumped 4.7 percent by 0435 GMT, the won gained 1.3 percent against the dollar and front-end treasury bond futures jumped 18 ticks.

Turbulent financial markets could hurt domestic economic growth by crimping household and company investment gains and discouraging companies and consumers from increasing spending until they become more confident about the future.

The Asian Development Bank on Tuesday cut its forecast on South Korea’s economic growth for this year to 4.6 percent from the previous 5.0 percent, days after the International Monetary Fund slashed its forecast.

President Lee’s comments came during his meeting with the ruling party’s leader.

“The uncertainty is getting uncovered. As the uncertainty is uncovered, it’s becoming more possible for the people to predict the future better than before,” a pool report from the Blue House quoted Lee as saying.

The Bank of Korea’s governor, Lee Seong-tae, pledged his commitment to shielding local financial markets from the global turmoil as much as possible.

“Governor Lee Seong-tae said that (the Bank of Korea) will respond pre-emptively and aggressively to signs of market instability by strengthening monitoring and expanding cash supply,” the central bank said in a statement.

The Bank of Korea said Lee made the remarks during his scheduled meeting with top executives from major commercial banks operating in the country.

On Thursday, the central bank effectively injected some 3.5 trillion won ($3.08 billion) in cash into the local financial system by draining less than usual from the system in maturing repurchase agreements.

The central bank also intervened in the local dollar/won swap market on Thursday, supplying dollars through sell/buy deals, as the market was suffering from a shortage in dollar funding.

On Friday, a senior central bank official said the swap market would soon regain stability as declining values of foreign ship orders won by South Korean companies would lead to reduced buy/sell deals in the swap market.

($1=1136.8 Won)

Source: http://www.afxnews.com

Related Content