South Korea watches US midterms and Fed hold as won's rate gap stays at 1 point

South Korea's top financial officials met on Thursday to plan for market turbulence after the US Federal Reserve held its benchmark rate at 3.75-4.00 percent, leaving the rate gap between Seoul and Washington at up to 1 percentage point.

Finance Minister Lee Hyoung-il convened Bank of Korea Governor Shin Hyun-song, Financial Services Commission Chairman Lee Eog-weon and Financial Supervisory Service Governor Lee Chan-jin, and said the Fed's 10-2 vote appeared to reflect a continued focus on stabilising consumer prices while it assesses the impact of September's rate rise. He pointed to earnings and investment outlooks at major technology firms and global oil prices as sources of volatility at home and abroad, and said Seoul would watch the composition of the US Congress after the midterm elections and any shift in Washington's external policies.

Lee said South Korea's fundamentals remain sound, with gross domestic product up 1 percent on the quarter in the third quarter, but warned that the US elections and fiscal instability in France could weigh on the government bond market. He said authorities would work with relevant institutions on timely stabilisation measures, including emergency bond buybacks, when needed. He also said he would discuss shortening the stock settlement cycle from T+2 to T+1 with market participants, calling it an important task that can reduce related risks and improve the efficiency of fund management.

Bank of Korea Senior Deputy Governor Kwon Min-soo said the Fed's hold was as expected but that external risks persist from tensions in the Middle East, concerns over the fiscal soundness of major countries and uncertainty around artificial intelligence investment. The central bank will keep a close eye on financial and foreign exchange markets, he said, with the European Central Bank and Bank of Japan also due to decide rates this week.