The Bank of Korea (BOK) said on October 4 that it plans to make aggressive measures to stabilize the financial market, if speculation over the timing of U.S. monetary quantitative easing increases market uncertainty.
The estimation of timing for the Federal Reserve to take measures has increased the market uncertainty, as the Fed surprised the market in September by deciding to delay tapering its US$85 billion monthly bond-buying program.
The BOK said in its monetary policy report that it will carry out, if necessary, aggressive open market operations, including liquidity injection, and the purchase of government bonds from the market.
Since May, emerging economies such as India and Turkey have suffered from excessive capital outflow and currency weakness, which was accelerated by growing speculation over the Fed’s tapering of the stimulus.
Korea has presented a differentiated aspect from other emerging economies as its current account surplus and foreign exchange reserves serve as buffers against possible foreign capital outflow.
The BOK said that the Fed's possible cut of quantity easing is likely to have a limited impact on Korea as the country has sound economic fundamentals. The central bank added, however, a possibility of big shocks on Korea cannot be excluded as it is not clear where global financial markets would move. It also mentioned the need to be wary of the possibility of unexpected financial tightening.