Fed chairman's speech to have limited impact on Korea: gov't

http://www.koreaherald.com/national/Detail.jsp?newsMLId=20110827000046

 The chief of the Federal Reserve refrained from laying out further steps to boost the fragile U.S. economy, but it is likely to have a limited impact on South Korea's financial markets, officials said Saturday.

   Fed Chairman Ben Bernanke on Friday stopped short of hinting at the third round of quantitative easing, known as QE3 in markets, to support the weakening economy at a conference in Jackson Hole, Wyoming. But the chairman said the central bank still has policy tools to stimulate the economy and will extend its September policy meeting into two days to mull its options.

   Korean government officials said as his remarks have been widely expected, they would have little impact on the local financial markets.

   "As many have already expected that Bernanke would not signal QE3, its impact will be limited on the local markets," a senior official at the finance ministry said.

   "But the government will closely monitor the market as the local financial markets have undergone volatility following the U.S. credit downgrade."

   The outlook for the global economy is growing dimmer as the first-ever U.S. credit rating downgrade and the eurozone sovereign strain have been raising concerns that the global economy may slide into a recession.

   A slowing U.S. economy could throw cold water onto the Korean economy as its economic output heavily depends on exports. The South Korean financial markets have been also sensitive to foreign capital flows as the country has repeatedly experienced massive capital outflows whenever big external shocks crop up.

   The Korean government said it is closely monitoring the local financial markets by running an emergency task force around the clock and is ready to take market stabilizing measures if necessary.

   The Jackson Hole meeting has been under spotlight as market players had awaited whether Bernanke would lay out powerful but controversial stimulus measures as he did at last year's meeting.

   Last year, Bernanke said the central bank will conduct a second round of asset-buying programs worth $600 billion to boost its economy. But emerging countries like China have voiced criticism about the QE2 that cheap money has been flowing into those countries, raising risks of inflation and asset bubbles. Even some Fed policymakers raised questions on the effectiveness of the asset-buying scheme with the U.S. still struggling with high unemployment rates.

   At present, there is growing expectation in the market that instead of QE3, the Fed is likely to opt to buy more long-term debt and sell short-term bonds in a bid to push down long-term interest rates without further bloating its balance sheet. (Yonhap)