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| BOK Governor Lee Ju-yeol responds to a question at a press conference held in the bank's headquarters in downtown Seoul, Thursday. The central bank left its key benchmark rate unchanged at 1.5 percent. Yonhap |
Central bank says Korea will not be labeled as currency manipulator
By Kim Yoo-chul
The increasing trade tension between the United States and China could adversely affect the Korean economy, the chief of the country's central bank said Thursday.
Bank of Korea (BOK) Governor Lee Ju-yeol said an escalating trade spat between the world's top two economies is worrying Asian economies, as well as investors. But Lee ruled out the possibility of any full-scale trade war occurring between them.
"My thoughts are that as China has it will broadly open up its markets, chances are low that the spat could escalate into a full-blown trade war, a spiral of aggressive retaliation that would hurt global trade," the BOK chief told reporters in a press conference at the bank's headquarters in downtown Seoul.
"Lots of political considerations will be necessary with negotiations between the two countries. The BOK hopes the trade spat will be eased soon, but there are many uncertainties about this issue," Lee said.
The path to the protectionist-push endgame and the details of relevant policy measures to be taken during the process could determine the extent of collateral impact. From this perspective, Korea is more exposed than other Asian economies given its higher export volume and market concentration risks.
The BOK governor, however, didn't mention by how much such uncertainties over trade friction would cause financial tightening and a decrease in domestic demand.
Regarding the question over the possibility Korea may be designated a currency manipulator by the U.S., Lee said this was unlikely.
"Of the three key conditions to be designated a currency manipulator, Korea meets two criteria; therefore, the BOK expects the country will escape being designated a currency manipulator by the U.S.," the BOK chief said.
As widely expected, the central bank left its key benchmark rate unchanged at 1.5 percent mostly because inflation is currently within its target range, and trade tensions are clouding the market outlook.
In a monetary policy meeting, the BOK said the country's economy was on a smoother track to grow 3 percent throughout this year but inflation is expected to grow 1.6 percent, slightly below the bank's earlier projections.
"Since the rate hike last November, its effects have been quite useful in terms of controlling debt growth, quite a bit. It's too early to thoroughly evaluate the effects of the previous rate hikes as this was just five months ago," the governor told the reporters.
Regarding heightened volatility in the currency market, Lee said the country's policy of letting the market itself determine exchange rates won't be changed "too much," even if an agreement is made with the U.S. Treasury and the International Monetary Fund on disclosing market interventions.
"The won-dollar rate has been hugely affected by global dollar moves. External factors such as geopolitical risks and U.S.-China trade friction have also been cited as important factors affecting the rate. But we will seek to stabilize the currency market by stepping in if we see too much market volatility," he said.
The BOK said given the scale of the country's economy, any chances of a massive capital outflow from Korea due to the difference in rates between Korea and U.S. were "low."
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