Amidst a recent surge in market volatility, the Bank of Korea has declared its readiness to intervene in currency markets to control excessive fluctuations. Bank of Korea Governor Rhee Chang-yong has described the recent movements in the Korean won’s value as somewhat disproportionate to market fundamentals.
External Factors Fueling Currency Weakness
Governor Rhee attributed the won’s weakness to a combination of factors, including the strength of the U.S. dollar, geopolitical tensions in the Middle East, and a trend of weakness in other Asian currencies such as the Japanese yen and Chinese yuan. He clarified that the won’s recent behavior has been a bit excessive compared to what would be justified by market realities.
Stabilizing Measures on the Horizon
Despite the market’s rollercoaster ride, Rhee assured the public that the central bank has the necessary tools at its disposal to deploy stabilizing measures if volatility persists. These measures include foreign exchange interventions, leveraging other domestic agencies, and utilizing a variety of tools to dampen currency fluctuations.
Inflation Challenges Remain
Governor Rhee also shed light on the ongoing challenges in controlling inflation. While core inflation is showing signs of moderation, headline inflation continues to be stubbornly high. This poses a barrier to the central bank’s goals, as it hesitates to adjust interest rates until there is confidence that inflation will converge to the desired target level.
Collaboration with Japan
In a related development, the South Korean Finance Minister, Choi Sang-mok, met with his Japanese counterpart, Shunichi Suzuki, on the fringes of the G20 Finance Ministers and Central Bank Governors Meeting in Washington D.C. Both ministers expressed concerns over the rapid depreciation of the yen and won and affirmed their shared intention to address excessive currency movements.
Data sourced from: cnbc.com
