Gov't hints at intervening in forex market

Deputy Prime Minister and Finance Minister Hong Nam-ki, right, speaks during a National Assembly audit of his ministry on Yeouido, Seoul. Yonhap

By Lee Kyung-min

The country’s finance minister has hinted at intervening in the local foreign currency market as a pre-emptive measure to limit swings in the value of the won hit by supply and demand mismatch amid continued market volatility.

This possibility is a response to the local currency's rapid strengthening against the dollar over the past month, a cause for major concern to many growth driver firms -― notably manufacturers ― in export-reliant Korea.

Sustained appreciation of the won against the dollar will sap the competitive edge of Korean export firms, ending up tightening domestic consumption – a dreadful combination that will frustrate the prospect of the much-awaited economic recovery.

Also fanned by the currency losing value is the fear of deflation ― an overall decline in the general prices of goods and services ― a lingering concern dreaded by economists and policymakers despite a recent recovery in consumer prices to the 1 percent level over the past six months.

The local currency closed at 1,131.9 won, Wednesday, a 10-month high after hitting 1,130.1 won March 22. It traded at 1,133 won to the dollar, Thursday, extending a one-month gain of 24 won in October alone.

“The rapid appreciation of the Korean won was attributable to a significant rise in the value of Chinese yuan, driven in part by market sentiment,” Deputy Prime Minister and Finance Minister Hong Nam-ki said during a National Assembly audit of his ministry on Yeouido.

The yuan advanced to a more than 27-month high against the dollar Wednesday (local time), led by strong economic indices pointing to a sustained economic recovery.

According to local media reports, the yuan opened at 6.6699 per greenback and was changing hands at 6.6549 at mid-day, its strongest showing since July 13, 2018.

“The government will continue to closely monitor fluctuations on the foreign currency market. Stabilization measures will be put in place immediately after detecting irregularities out of sync with the country's economic fundamentals and forex supply and demand,” he added.

Manufacturers of chips and display as well as automakers are becoming increasingly unsettled by the local currency hitting a 19-month high, given their earnings in dollars converted to Korean won will lead to substantial losses.

The impact will be limited for steelmakers, however, as a stronger won can help them reduce purchase costs of raw materials, while final products will be sold at higher-than-usual prices.