The KOSPI rose 0.7 percent to 6,765.65 while the benchmark 10-year government bond yield fell 2.5 basis points to 4.528 percent as of 10:20 a.m.
The dollar gained 2.4 won to 1,379.9 won, indicating modest weakness in the Korean currency.
South Korean policymakers said the Fed’s quarter-percentage-point increase had largely been priced into financial markets and was unlikely to cause an immediate shock.
They nevertheless vowed to closely monitor bond yields and foreign exchange movements ahead of rate-setting meetings in Tokyo and London, where further policy tightening could add to global market volatility.
The Federal Open Market Committee unanimously raised its benchmark federal funds target range by 25 basis points to 3.75 to 4.00 percent overnight, its first increase in three years and two months.
The Fed also left the door open to further tightening this year, with most policymakers projecting at least one additional increase.
Deputy Prime Minister and Finance Minister Koo Yun-cheol chaired an expanded macroeconomic and financial meeting at 8 a.m. with Bank of Korea (BOK) Gov. Shin Hyun-song and the heads of the Financial Services Commission and Financial Supervisory Service.
The Fed hike widened the interest-rate gap with South Korea, where the BOK’s benchmark rate stands at 3.00 percent following back-to-back increases over the past two months.
Among the 18 Fed officials submitting rate projections, 16 expected at least another 25-basis-point increase this year. Twelve projected one additional hike and four saw room for 50 basis points of further tightening. Fed Chair Kevin Warsh did not submit a projection.
The projections, commonly known as the Fed’s “dot plot,” indicate where individual policymakers expect interest rates to stand in the future.
Warsh also said recent inflation trends had not improved meaningfully and that current financial conditions were difficult to describe as restrictive, according to the BOK.
The BOK, which separately held a market monitoring meeting Thursday morning, said Warsh’s emphasis on price stability and the prospect of further rate increases suggested U.S. monetary policy would remain tight.
Officials distinguished between the limited immediate impact of the well-anticipated hike and longer-term risks from additional U.S. tightening.
Overnight, the two-year U.S. Treasury yield rose 7 basis points to 4.74 percent and the 10-year yield gained 2 basis points to 5.02 percent. The dollar index climbed 0.7 percent to 100.32.
The S&P 500 fell 0.4 percent to 7,552, while West Texas Intermediate crude futures dropped 3.6 percent to $102.02 a barrel.
South Korean authorities said volatility in the government bond market had increased as global financial conditions shifted and pledged to take stabilization measures if trading became excessively one-sided.
Officials also said they would monitor rising lending rates and heavier repayment burdens on financially vulnerable borrowers while implementing existing support programs and considering additional measures if needed.
The meeting reviewed how South Korea’s current account surplus and other changes in economic conditions could affect market liquidity and asset prices.
Authorities said they would closely watch oil prices, global capital flows and monetary policy decisions from Japan and Britain alongside risks from the Middle East war, fiscal concerns in major economies and uncertainty surrounding the artificial intelligence industry.
AJP Takeaways
- South Korean markets showed little initial stress after the Fed hike, with the KOSPI gaining 0.7 percent and the 10-year government bond yield falling 2.5 basis points in morning trading.
- Authorities said the 25-basis-point Fed increase had largely been priced in but remained alert to further U.S. tightening and upcoming policy decisions in Japan and Britain.
- The Fed hike widened the Korea-U.S. policy-rate gap to as much as 1 percentage point, while Korean authorities said they were prepared to respond if bond or foreign exchange volatility became excessive.
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