An employee organizes dollars at the counterfeit countermeasures center at Hana Bank’s headquarters in central Seoul. (Yonhap)
WASHINGTON, April 19 (Korea Bizwire) – The won-dollar exchange rate may move toward stabilization if tensions in the Middle East do not escalate further, the chief of South Korea’s central bank forecast Friday, noting “many uncertainties” stemming from developments in the region.
Bank of Korea (BOK) Gov. Rhee Chang-yong made the prediction as concerns over the recent depreciation of the Korean won continue amid expectations that the U.S. Federal Reserve might start rate cuts later than anticipated due to stickier-than-expected inflation.
Adding to the concerns were Iran’s recent drone and missile attack on Israel and Israel’s apparent retaliatory move that have raised fears of a wider regional war and disruptions to oil shipments and other commercial transactions.
“If (the conflict) does not escalate into a wider war … and if a blockade of the Strait of Hormuz does not take place, I think the exchange rate may again shift toward stabilization,” Rhee said in a meeting with South Korean correspondents.
Rhee highlighted that developments in the Middle East affect Asia’s fourth-largest economy, which relies heavily on the region for oil imports.
“There are many uncertainties. … The situation for countries like South Korea that consume a lot of oil becomes uncertain depending on where the Middle East is headed,” he said. “Fortunately, the prevailing prediction is that the conflict may not escalate further. We have to keep watching it.”
The BOK governor also pointed out that the finance ministers of South Korea, the United States and Japan acknowledged “serious concerns” over the recent “sharp” depreciation of the South Korean won and Japanese yen during their first trilateral meeting in Washington on Wednesday.
“It is important that not only Japan and South Korea but also the U.S. acknowledged the pace of the currency depreciation was excessive,” he said. “The fact that (the three sides) formed the shared understanding was a considerably meaningful outcome.”
The exchange rate issue figured prominently this week as the Korean won dipped to an alarming level of 1,400 won per dollar during Tuesday’s intraday trading for the first time since 2022 before closing at 1,394.50 won.
Following their talks, Finance Minister Choi Sang-mok, U.S. Treasury Secretary Janet Yellen and Japan’s Finance Minister Shunichi Suzuki issued a joint statement noting their concerns over the currency depreciation in a coordinated message to help tame foreign exchange market volatility.
Asked to comment on the U.S.’ claim about China’s overcapacity, Rhee said that the issue can be seen differently depending on how one looks at it.
“If you look at it from the perspective of the domestic market size, it can be excess production, but if you look at it through the lens of exports, the definition could differ,” he said.
“How to deal with China’s cheap products … this is something that can be addressed not only by economic theories but also through negotiations.”
Rhee was in the U.S. capital to attend the annual meetings of the International Monetary Fund and the World Bank, as well as gatherings of Group of 20 finance chiefs and top central bankers.
(Yonhap)
