 Strategy and Finance Minister Bahk Jae-wan, right, talks during an event organized by broadcasting stations in downtown Seoul, Monday. Bahk’s indication of intervention in currency markets cooled the won’s rise. / Yonhap |
By Kim Da-ye
The value of Korean won continues to rise, inciting the government to mull over stepping in through a so-called “smoothing operation.”
The domestic currency closed Monday at 1,057.8 won against the U.S. dollar _ down 0.8 won from 1,057 won on Friday. The exchange rate moved below the 1,060 won mark last week for the first time in nearly three years since the summer of 2008.
Minister of Finance and Strategy Bahk Jae-wan told reporters on Monday that the government could intervene if the won gets dramatically stronger.
The minister, however, said that it is difficult to determine whether it is currently the right time for intervention.
Economists say that investors’ preference for risky assets _ thanks to the easing of fears against the sovereign debt crisis in Europe and the improvement of U.S. economic indices _ have led the local currency to climb.
The value of the won, in general, goes up when a large amount of foreign currencies flow into the domestic market. With the recovery of the Seoul bourse, foreigners net-bought a record amount of Korean stocks worth 1.72 trillion won on Friday _ the previous high was 1.64 trillion won on Oct. 11, 2007, according to the Korea Exchange (KRX).
“The government announced it will prioritize stabilizing prices in the second half. This has heightened expectations of an interest rate hike and the government’s intention to let the won appreciate, eventually helping the exchange rate drop,” Chae Hyun-ki, an economist at Daishin Securities, said in his report.
Noh Keun-whan and Kim Kyung-ju, analysts at Korea Investment & Securities, agreed that the policy to control inflation will help the value of the won rise.
They lowered the forecast for the average exchange rate for the third quarter from 1,100 won to 1,060 won and that for the fourth quarter from 1,120 won to 1,080 won.
While it is generally understood that the expensive won can damage the country’s exports, Noh and Kim said that may not be the case.
They said in their joint report that corporate earnings and stock prices, in fact, improved when the value of won rose. An analysis of data collected for 10 years showed that the ratio of operating profit to sales for businesses grew by 0.65 percentage points when the won appreciated by 10 percentage points.
The analysts said that companies depending on domestic consumption would benefit from the appreciation of the won while the auto and chemicals sector shouldn’t be hit badly because they are globally competitive.
