Outgoing finance chief hints at intervention amid weakening won
An inspector examines a batch of $100 bills to identify counterfeits, if any, at Hana Bank headquarters in Seoul on Thursday. (Yonhap)
SEJONG — Deputy Prime Minister and Finance Minister Hong Nam-ki on Thursday sent the signal that the financial authority would intervene in the foreign exchange market as the Korean currency recently lost value against the U.S. dollar.
At a meeting aimed at devising countermeasures against the current economic situation in Seoul, Hong pointed out that the won has been rapidly losing ground against the dollar this week.
The rise in dollar prices was attributed to the possibility of faster-than-expected monetary tightening by the US Federal Reserve and concerns over Korea’s economic slowdown amid China’s tight COVID-19 restrictions. , did he declare.
“The government is watching (the currency market) closely in an effort to avoid high volatility,” he said. “(The government) will make efforts to stabilize the market if necessary.”
Market insiders say the minister’s remarks suggested a strong willingness to intervene in the market, viewing the remarks at the meeting as prior verbal intervention to curb further depreciation in won prices.
Although the financial authority refrains from commenting on whether it is carrying out “real intervention”, it could choose to fine-tune the won-dollar exchange rates by selling the government-owned greenback on the market. discreetly.
Despite Hong’s comments, the dollar continued to rise to close at 1,272.50 won on Thursday after hitting a yearly high for the fifth consecutive trading session. The exchange rate was the highest in more than two years as the dollar hit 1,285.70 won on March 19, 2020.
Japan’s freezing of its benchmark interest rate on the day caused the dollar’s strong position against the yen, which caused a weaker position for Asian currencies, including the won, according to the analysis of the local traders.
Compared to 1,114 won a year earlier, on April 28, 2021, the price of the US currency has increased by 14.2%.
Cheap Korean currency could pose a threat to the economy as commodity import prices soar and consumer inflation hit 4.1% in March.
Further depreciation of the won could lead to higher import prices for raw materials, including crude oil, and retail price inflation. It is likely to increase the burden for both businesses and households.
At the meeting, Hong singled out stabilizing consumer prices and reducing financial market volatility as two of the three key tasks in terms of impending economic policies. He added that the other task of the three was to stabilize the real estate market.
Commenting on the skyrocketing cement prices, Hong said the import prices of blazing coal, which is used for construction materials, jumped around 100% following the war between Ukraine and China. Russia.
The government will diversify flaming coal import routes, for example, by increasing the share of Australian products from 25% to 38% in collective flaming coal imports, he said.
By Kim Yon-se ([email protected])