Outgoing fiscal chief hints at FX intervention over weakening won

SEJONG -- Deputy Prime Minister and Finance Minister Hong Nam-ki on Thursday sent a signal that the financial authority would move to intervene in the foreign exchange market as the Korean currency sharply lost value against the US dollar recently.

During a meeting to map out countermeasures against the current economic situation in Seoul, Hong said the won lost ground against the dollar at a fast pace this week.

The rising dollar prices were attributed to the possibility of faster-than-expected monetary tightening of the US Federal Reserve and worriers over Korea’s economic slowdown from China’s tough COVID-19 restrictions, he said.

“The government is closely monitoring (the currency market) in a bid to prevent high volatility,” he said. “(The government) will make efforts to stabilize the market if necessary.”

Market insiders say that the minister’s remarks suggested his strong willingness toward market intervention, regarding the remarks at the meeting as a prior verbal intervention to curb further depreciation in the won’s prices.

Though the financial authority refrains from publicizing as to whether conducting “real intervention,” it could choose to carry out fine-tuning of the won-dollar exchange rates by selling the state-owned greenback in the market in a low-key manner.

Despite Hong’s comments on the foreign exchange level, the dollar continued to rise to close at 1,272.5 won on Thursday after renewing the yearly-high for the fifth consecutive trading session. This marked the highest in more than two years since the dollar reached 1,282.5 won on March 23, 2020.

Japan’s freezing of its benchmark interest rate in the day caused the dollar’s strong position against the yen, which caused a weaker position for Asian currencies including the won, according to analysis of local currency dealers.

Compared to 1,114 won a year earlier on April 28, 2021, price of the US currency rose by 14.2 percent.

The cheap Korean currency could pose a critical threat to the economy amid the unfavorable situation that the nation’s import prices in raw materials are spiraling and the consumer prices growth reach 4.1 percent on-year in March.

A further deprecation of the won could possibly bring about higher import prices of raw materials, involving crude, and fan the inflation in retail prices. It is like to aggravate the burden for both businesses and households.

At the meeting, Minister Hong, picked stabilization of consumer prices and curbing volatility of the financial market for two of the three core tasks in terms of impending economic policies. He added the other task of the three is stabilizing the real estate market.

Commenting on a spike in prices of cement, Hong said import prices of flaming coal, which is used for construction materials, surged by about 100 percent in the wake of the Ukraine-Russia war.

The government will diversify routes for import of flaming coal, for example, by expanding the share of Australian products from the current 25 percent to 38 percent in the collective flaming coal imports, he said.

By Kim Yon-se (kys@heraldcorp.com)