Financial institution of Korea Governor Rhee Chang-yong refuted the view that the current rise within the won-dollar trade charge is because of the deterioration of Korea’s financial fundamentals. His clarification is that supply-demand components, together with international greenback power and yen weak point as exterior components, plus the growth of abroad inventory investments by particular person buyers, have pushed up the trade charge.
At a press briefing held after the Financial Coverage Committee froze the bottom charge at 2.50% each year on the morning of Jan. 15, Rhee assessed the current trade charge rise, saying, “Provide-demand components comparable to inventory investments, along with Korea’s financial fundamentals (primary power), are working to a substantial diploma.”
Rhee rejected the pessimism in regards to the Korean financial system raised in some quarters, saying, “I don’t agree.” He emphasised, “There are a lot of optimistic features to the Korean financial system, comparable to synthetic intelligence (AI) trade capabilities,” and “saying that the Korean financial system is totally ruined and the trade charge will proceed to rise is extreme discuss.” He added, “Irrespective of who turns into the winner within the AI trade, I believe the outlook for our (semiconductor) trade is nice in at the very least the following one-year timeframe.”
Concerning the background of the trade charge rise, he pointed to each exterior components and home supply-demand components collectively. Rhee analyzed, “About three-quarters of the trade charge rise components in the beginning of this 12 months had been greenback power, yen weak point, and geopolitical dangers,” and “the remaining about one-quarter was because of our personal components, particularly provide and demand.”
He significantly pointed to the abroad funding flows of particular person buyers. He defined, “Particular person buyers have repeatedly engaged in large-scale greenback purchases when the trade charge falls to a sure stage,” and “particular person buyers’ abroad inventory funding funds in January this 12 months are flowing out at ranges much like or considerably greater than October-November final 12 months.”
Rhee dismissed the chance that the trade charge rise might result in monetary instability as prior to now. He emphasised, “Since our nation is an exterior creditor nation, even when the trade charge rises, it’s not a monetary disaster like prior to now,” and “it’s completely different from previous conditions the place corporations would collapse and go bankrupt in the event that they couldn’t repay giant overseas forex money owed.”
Nonetheless, he additionally clearly identified the unwanted side effects of the trade charge rise. He assessed, “The tough facet impacts peculiar folks and home demand corporations,” and “costs might rise because of the trade charge, and importers might additionally face difficulties, so it’s not fascinating.” He additionally identified, “At present, our nation has considerable {dollars},” and “the issue is that, anticipating the trade charge to rise, they don’t promote {dollars} within the spot market however solely lend them.”
Concerning the financial coverage stance, he requested, “I wish to make it clear that the Financial institution of Korea’s rate of interest coverage is decided primarily based on costs, not the trade charge.”
