Bank of Korea Gov. Kim Choong-soo said Thursday that it was highly “inappropriate” to say that the country was able to achieve current account surpluses mainly due to its undervalued currency.
The governor’s remarks to the press came after the BOK monetary policy committee unanimously decided to keep its key base rate unchanged at 2.5 percent for the sixth straight month.
Gov. Kim said that Korea saw “surpluses mostly through trade with emerging economies, not with developed economies,” adding that Asia’s fourth-largest economy has current account deficits with the U.S. and Japan.
The BOK chief went on to say that not only the tech sector but all industries will have seen the benefit of a current account surplus stemming from the devaluation of the won.
However, this was not the case for Korea, Kim said, indicating that the current forex rate shows “no gap” with what the market expected and is at an appropriate level.
His comment on the foreign exchange and current account was seen as a response to the U.S. Department of Treasury, which called on Korea to maintain a transparent foreign exchange market and reduce its reliance on exports.
“We are concerned at reports Korea is intervening in the (forex) market to resist appreciation in the context of a large and widening current account surplus,” the U.S. Department of the Treasury said in a report presented to the Congress on International Economic and Exchange Rate Policies on Oct. 30, 2013.
Korea recorded a current account surplus for the 20th consecutive month as of September with the cumulative surplus reaching $48.79 billion in January-September this year, nearly double that of the same period last year.
The BOK forecast the country’s total annual surplus to hit $63 billion, accounting for more than 5 percent of its gross domestic product this year.
Gov. Kim said that the economy is getting better and the BOK expected to see a turnaround in facility investments. He added that signs pointed to the real estate market also improving on the back of the government’s tax cut revisions for housing transactions.
However, it remained to be seen whether the housing market would fully stabilize, he noted.
External uncertainty concerning quantitative easing tapering in the U.S. still poses a downside risk to the Korean economy, the governor said.
Nonetheless, the Korean central bank froze its key rate as it maintained its forecast that Korea will grow 2.8 percent this year and 3.8 percent next year on the back of global recovery.
By Park Hyong-ki
(hkp@heraldcorp.com)
