Lee Hyo-jin covers the Bank of Korea, the banking industry and broader financial news. Her previous beats include foreign affairs, North Korea and general reporting on Korean society.
Korea's $20 bil. US investment unlikely to pressure won: BOK chief
Bank of Korea Gov. Shin Hyun-song speaks during a press briefing with Korean reporters on the sidelines of the Jackson Hole Economic Policy Symposium in Wyoming, Friday (local time). Courtesy of Bank of Korea
By Lee Hyo-jin
Korea's planned annual investment of up to $20 billion in the United States is unlikely to put pressure on the won, as the local currency has become more resilient to external shocks, Bank of Korea (BOK) Gov. Shin Hyun-song said.
Speaking to reporters on the sidelines of the Jackson Hole Economic Policy Symposium in Wyoming on Friday (local time), Shin said the size of the investment was manageable, given Korea's foreign exchange reserves.
"The memorandum of understanding says Korea will invest up to $20 billion annually in the U.S. While the investment could reach $20 billion, we could invest less, depending on the circumstances," Shin was quoted as saying in response to a question about whether the planned investment could put pressure on the won.
Seoul's commitment to invest up to $20 billion annually is part of a larger $350 billion investment framework with Washington in exchange for lower tariffs.
But concerns have emerged that the investment commitment could put additional pressure on the foreign exchange market by increasing demand for dollars, particularly if the won remains weak.
Shin, however, pointed to the won's recent performance as a sign of its resilience, saying that the won has gained a certain degree of immunity to external shocks.
Despite a rise in the dollar index, which measures the U.S. currency's value against six major currencies, the won has strengthened against the dollar in recent weeks.
It recently hit the high 1,300-won range per dollar for the first time in 11 months, reversing sharply from just two months earlier, when it weakened to 1,560 won in June. On Friday, the won strengthened further to close at 1,372.5 per dollar in onshore trading in Seoul, up 8.4 won from the previous session, bringing the won-dollar exchange rate to its lowest level in 13 months.
The governor also stressed that the central bank would not mechanically follow the Federal Reserve's interest-rate moves. The BOK raised its benchmark rate by 0.25 percentage point to 3 percent at Thursday's policy meeting, marking a consecutive hike following its July increase.
"Just because the U.S. raises interest rates, it doesn't mean we have to raise ours," Shin said. "Of course, if the U.S. continues to raise rates, the environment for monetary policy would change and we would have to reassess the situation. But we do not mechanically follow the interest-rate gap."
The remarks came as Federal Reserve Chair Kevin Warsh said at the Jackson Hole symposium that U.S. inflation was still too high and suggested the central bank may "have work to do," which market watchers interpreted as leaving the door open to a rate hike in the coming months.