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U.S. exit from QE not to have negative consequences on S. Korea: Moody's


16:38, June 20, 2013

SEOUL, June 20 (Xinhua) -- Possible exit from quantitative easing in the United States will not have any negative consequences on South Korea in terms of credit profile, global credit rating appraiser Moody's said on Thursday.

"I'm not worried about the negative consequences (in terms of credit profile)," Tom Byrne, senior vice president of Moody's Investors Service, told reporters at a conference held in central Seoul.

Byrne noted that even if the U.S. bond-purchasing program ends and global bond yields go up, borrowing costs for the South Korean government will not follow suit, saying that South Korea maintains the fiscal soundness and will have no troubles in repaying maturing debts.

Even though the South Korean government bond yields climbed following comments by the U.S. Federal Reserve Chairman Ben Bernanke, it will not have direct adverse effects on government finances and ratings, Byrne said. He stressed that South Korea's fiscal healthiness will not be affected by such volatility.

Following the two-day policy meeting, Fed Chairman Ben Bernanke said overnight that the U.S. central bank may vary the pace of bond purchases depending on the evolving economic conditions. He said that the Fed was likely to begin reducing the pace of quantitative easing later this year, before bringing it to an end by the middle of next year.

After Bernanke's comments, bonds and stocks here tumbled. Three-year Korea Treasury Bond (KTB) yields traded above 2.9 percent, surging from the Wednesday's close of 2.81 percent. The benchmark KOSPI declined about 2 percent on the main bourse.

South Korea's senior economic policymaker also dismissed excessive concerns over adverse effects from the U.S. exit. Vice Finance Minister Choo Kyung-ho told foreign correspondents that the U.S. exit "will not go so far as to drive markets into panic. Bernanke just explained the stages of exit from quantitative easing."

Choo noted that Bernanke's comments eliminated uncertainties in the global financial market, stressing that the possible exit would be based on the Fed's confidence over the U.S. economic recovery.

Touching on the market response, Choo said that overreaction would be made in the financial market at an early stage, but the vice minister noted that the market will end up converging to economic fundamentals.

Choo said that Bernanke's comments implied his confidence over the recovery, adding that the improved external conditions would help boost the economy, which depends on exports for around half of its production.

Byrne at Moody's expected the South Korean economy to grow at a rate of 3 to 4 percent, staying below the pre-crisis trend of 4 percent growth, due to the global economic sluggishness blocking the nation's exports, the main driver for growth.

Bank of Korea (BOK) lowered its 2013 growth outlook for the country from 2.8 percent to 2.6 percent, while the Finance Ministry slashed its outlook from 3 percent to 2.3 percent.

To brighten the gloomy economic outlook, the South Korean government unveiled its supplementary budget plan worth 17.3 trillion won, or around 1.3 percent of 2013 GDP, that was passed by the parliament in early May. The BOK cut its benchmark policy rate by 25 basis points to 2.5 percent last month.

BOK Governor Kim Choong-soo said earlier this month that the extra budget and policy rate cut would boost the country's growth rate by 0.2 percentage point in 2013, forecasting that the growth may near to 4 percent next year.

Moody's upgraded sovereign credit rating on South Korea by one notch to "Aa3" from "A1" on August 2012, with a "stable" rating outlook.

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