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Bank of Korea weighs FX intervention to stem won’s slide

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SEOUL — The governor of the Bank of Korea said Tuesday that the central bank is considering intervening in the foreign exchange market in a bid to stem the won’s sharp slide against the U.S. dollar.

“We plan to stabilize the market, if needed, watching outside uncertainties carefully,” Gov. Lee Ju-yeol told reporters after the bank’s seven-person monetary policy board kept its key interest rate unchanged at 0.75% as expected. “Recently, the won-dollar exchange rate has risen somewhat quickly than other key currencies.”

The won slid to 1,200.40 against the greenback in the morning trading — its weakest level in 14 months. The South Korean currency fell 5.2% versus the dollar in the three months through the end of September.

Lee hinted that the central bank will raise its benchmark next month as the South Korean economy is expected to post robust growth — the BOK sees a 4% expansion in gross domestic product this year — and inflation to forecast to accelerate to more than 2%.

“If things go as we expect, we can consider an additional hike next time,” said Gov. Lee. “I think adjustments in the level of accommodation should continue.”

The decision to hold rates was opposed by two members of the BOK’s board, in a further sign that tighter policy is on the bank’s radar.

Economists see an increase in November as the BOK’s main priority is controlling financial risks amid surging house prices and household debt. “Financial markets are pricing in our view that there will be a hike next month,” Alex Holmes, an Asia economist at Capital Economics, said in a note after the BOK’s decision.

Holmes said that the economic backdrop remains favorable as monthly data point to a decent recovery in the third quarter. Solid progress on the nation’s vaccination roll-out raises the prospects for the lifting of movement restrictions and a further rebound in consumer spending over the quarter ahead, he added.

Read More: Bank of Korea weighs FX intervention to stem won’s slide

2021-10-12 06:15:00

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