S. Korea sees Fed's decision to maintain quantitative easing as 'positive'

SEJONG, Sept. 19 (Yonhap) -- South Korea Thursday welcomed Washington's decision to delay tapering its quantitative easing measures, saying that it could have a "positive" impact on the Korean economy, officials here said.

The reaction came after the Federal Reserve decided to keep its current bond-purchasing program in place during the Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday (local time). The decision is based on less optimistic views of its economy and employment.

The Fed has been buying US$85 billion every month in a bid to inject liquidity and stimulate its overall economy. Market watchers had speculated that Washington could scale back the monthly bond purchasing by $10-15 billion this week as the overall economic conditions are improving. The U.S. also said that it will keep its interest rates at near zero at least until 2015.

The South Korean government has been on standby to gauge what impact a possible tapering of the quantitative easing might have on its economy amid deepening concerns over massive capital outflows from emerging Asian countries.

"For our economy, it is a decision that would have more positive impact," a finance ministry official said on condition of anonymity.

"Given that a slowing move toward an exit strategy could ease market instability in emerging Asian economies that have been gripped by worries over possible capital outflows, we expect the Fed's decision could reduce market uncertainty," he added.

The government still remains vigilant against any unexpected developments.

"The Fed's decision this time could be viewed that its economic recovery is not as fast as many have expected. An exit from the stimulus measures will also take place anyway someday in the future," another ministry official said. "We will review what measures we can take in response to possible market situations."

The U.S. is expected to roll back its stimulus measures in the months to come as Fed Chairman Ben Bernanke said in June that he will start rolling back the bond-purchasing program within this year. The Fed is scheduled to hold FOMC meetings in October and December this year.

The finance ministry held a meeting as scheduled to monitor market situations.

"Many market players expected a reduction in quantitative easing but as it was kept intact this time, stocks in the U.S. rose and currencies in India and Indonesia gained ground," said Deputy Finance Minister Eun Sung-soo, who chaired the meeting in Seoul. "The Fed's decision seems to be working favorable for the market at this point.

"But the tapering is still an ongoing issue, and there are also some risk factors we can find in the Fed's decision so we will respond to market situations with a sense of caution against external volatility."

Finance Minister Hyun Oh-seok shared the view that the government should remain on alert since the Fed's decision should be accepted as a "strong signal" that Washington will soon start an exit strategy from quantitative easing.

"There is a positive aspect of less shock for emerging countries thanks to a delay in tapering, but we should stay cautious against future developments," he said while visiting Indonesia to attend the Asia-Pacific Economic Cooperation meeting.

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