South Korea will supply “ample” liquidity in local and foreign currencies if needed to shield markets from any shocks after North Korea’s attack on one of the country’s islands on Tuesday, the finance ministry said.
“The government and central bank will act quickly when extreme anxiety sparks herd behavior in the financial and currency markets,” the finance ministry said in a statement after government and central bank officials held an emergency meeting this morning to discuss possible countermeasures to support markets in the wake of the exchange of artillery fire.
“We are fully capable of coping with this situation given our record foreign-exchange reserves and strong economic fundamentals,” South Korean Vice Finance Minister Yim Jong-yong told reporters in Seoul after the meeting.
PHOTO: BLOOMBERG
International credit rating companies share the government’s view that the impact on the economy and markets will be limited, Yim said.
Moody’s Investors Service, Fitch Ratings, and Standard & Poor’s Ratings Services said today that South Korea’s credit rating wouldn’t be affected by North Korea’s artillery attack.
The uncertainty surrounding North Korea has increased as the country undergoes a leadership transition, Moody’s senior vice president Thomas Byrne said in an e-mailed response to questions.
Still, “our assessment remains that the robust state of the ROK [Republic of Korea]-US military alliance and China’s interest in stability on the peninsula will deter Pyongyang from taking even more reckless provocations, possibly leading to war,” he said.
Byrne said South Korea’s strong credit fundamentals continue to support the rating. Moody’s rates South Korea’s foreign and local currency long-term debt A1, the fifth-highest of 10 investment-grade levels with a “stable” outlook.
Fitch isn’t considering a “negative rating action” on South Korea, Andrew Colquhoun, the Hong Kong-based head of Asia- Pacific sovereign debt, said in an e-mailed response to questions from Bloomberg News. The company has South Korea’s rating at “A+” with a stable outlook.
Standard & Poor’s director of sovereign ratings Takahira Ogawa said: “We do not believe that this incident will impair the financial account of Korea’s balance of payments or its other credit metrics.”
S&P, which has an “A” foreign currency and “A+” local currency sovereign rating on South Korea, will continue to monitor the situation, Ogawa said.
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