Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Currency swap deal is not cure-all to stabilize exchange rate: BOK chief
Bank of Korea Governor Rhee Chang-yong answers questions from lawmakers during the National Assembly's annual audit in Seoul, Friday. Joint Press Corps-Yonhap
By Lee Min-hyung
By Lee Min-hyung
Clinching the Korea-U.S. currency swap deal is not a cure-all to stabilize the sharp depreciation of the Korean won against the dollar from a long-term perspective, Bank of Korea (BOK) Governor Rhee Chang-yong said Friday.
“It is hard to come to a conclusion that the currency swap agreement will stabilize the won-dollar exchange rate from a long-term viewpoint,” Rhee told lawmakers during a National Assembly's annual audit. “Shrinking global dollar liquidity is a precondition for the swap deal.”
The remark came amid growing public unrest triggered by the soaring won-dollar exchange rate which topped 1,400 won per dollar. The won-dollar rate closed at 1,412.4 on Friday, up 10 won from the previous day. The figure hovered around 1,200 won in January this year, but starting last month, it has been on a rapid rise amid the Fed's reiterated hawkish rhetoric.
This prompted a call for the Korean central bank to preemptively sign the currency swap agreement with the world's largest economy.
However, the BOK chief has maintained a passive stance over the need, saying that the current foreign exchange reserve levels are still enough. But data from the BOK showed that the foreign exchange reserves here fell to $416.77 billion in September, a drop of 4.5 percent from the previous month, the steepest decline since October 2008.
“The decision on the agreement will be made by the U.S. Fed, and we are exchanging information with the authority,” Rhee said. “We will discuss further with the Fed at the right time.”
The BOK chief also remained unwavering in his position of increasing the key rate further until inflation is under control.
“We are going to keep our rate hike stance unchanged, as inflation is unlikely to fall below the 5-percent range until the first quarter of 2023,” Rhee said. Korea's consumer prices rose 5.6 percent in September from a year ago.
Korea's benchmark rate sharply increased to 2.5 percent, a rise of 2 percentage points in only about a year.
When asked about a proper interest gap between the BOK and the Fed, Rhee declined to comment, citing the upcoming rate-setting meeting, which is slated for Oct. 12.
“It is hard for me to comment on it, as the monetary policy board meeting will be held next week.”
The market expects the BOK to take another big step rate hike of 50 basis points during the upcoming meeting amid unceasing inflationary pressure. The Fed's consecutive giant rate hikes of 75 basis points also come as a growing burden for the BOK, prompting it to maintain its hawkish monetary policy.