Seoul to take preemptive steps to stabilize markets

South Korea will take swift and bold steps if necessary to help stabilize the financial markets, the country's finance minister said Wednesday, assuring that the country's economic fundamentals remain strong despite what he called "temporary risks."

In an emergency meeting with other top financial officials, including the head of the Bank of Korea, Finance Minister Hong Nam-ki said the increased volatility in the market was the result of "short-term risks" that happened to overlap.

He vowed "bold and swift" measures to help stabilize the market when necessary.

"Under the contingency plan that has already been devised, (the government) will take swift and bold steps through all available means, such as stock market stabilization measures and easing regulations on buybacks and short selling, at a suitable time," Hong said before the meeting.

The country's top economic policymaker said global stock markets are generally showing weaknesses as concerns of a global slowdown grow, while uncertainties over a US rate cut continue and the US-China trade dispute escalates.

"Domestically, sluggish exports and investment caused by external conditions, along with poor business performance and Japan's export restrictions are adding to difficulties," he said.

Wednesday's meeting came in the face of an apparent stock market crash amid the escalating trade tension between the United States and China, and more recently, another looming trade spat between Seoul and Tokyo.

On Tuesday, the benchmark Korea Composite Stock Price Index fell 29.48 points, or 1.5 percent, to 1,917.50, the lowest since Feb. 29, 2016, following a 2.56 percent plunge the previous day.

Possibly helped by their pledge to use all available means to support the local economy, and the overnight gains on Wall Street, the KOSPI rebounded, albeit at a slow pace, gaining 1.08 points or 0.06 percent in the first 30 minutes of trading.

The local currency also recovered some ground against the US dollar after financial officials hinted at a possible market intervention.

"The volatility in the local financial and foreign exchange markets has expanded due to the US-China trade dispute and Japan's export restrictions, and there exists a possibility that the markets may continue to become unstable depending on how external conditions develop in the future," BOK Gov. Lee Ju-yeol told the meeting.

The Korean won was trading at 1,214.20 won to the greenback as of 9:30 a.m.

The local currency finished unchanged at 1,215.30 to the US dollar on Tuesday, one day after it plunged to the lowest level in more than three years.

"As now is when we must focus on financial and foreign exchange market stabilization, the Bank of Korea will continue its market stabilization efforts while closely cooperating with the government," Lee said, apparently hinting at possible market interventions.

Finance Minister Hong insisted government intervention was internationally acceptable in case of sharp volatility increases.

Lee said the BOK may also consider a monetary policy change should conditions worsen, hinting at a possible rate cut.

The central bank slashed its key rate to 1.50 percent from 1.75 percent last month, the first rate reduction in more than three years, but has been facing growing calls for an additional rate cut to support economic growth amid a steady decline in exports and sluggish investment.

Seoul's exports have dropped for eight consecutive months since December, partly leading to an unexpected 0.4-percent contraction of the local economy in the first quarter from three months earlier.

The BOK has also slashed its growth outlook for Asia's fourth-largest economy to 2.2 percent from 2.5 percent forecast in April.

"More fundamentally, maintaining our economy's credibility is more important than anything else, and the central bank and the government will pool their wisdom in consistently managing our macroeconomy to this end," Lee said. (Yonhap)