South Korea pushed back against US pressure over its foreign-exchange policy and current-account surplus, with the central bank governor saying that the nation only acts to check extreme swings in the won.
“I don’t think there is a large possibility of Korea being named a currency manipulator by the [US] Treasury, although there is a possibility the US may change its currency monitoring criteria,” Bank of Korea (BOK) Governor Lee Ju-yeol said after the central bank kept monetary policy unchanged. “The BOK’s stance is that the FX rate should be determined by the market and authorities only smooth when volatility is extreme.”
The comments reflect the concern in the export-dependent country about the intentions of the administration of US President Donald Trump, both with regards to South Korea and also its largest trading partner, China.
“If China was named a currency manipulator, the yuan may appreciate at first, but will weaken as economic growth slows,” Lee said. “Slower growth in China and a weaker yuan could have a negative effect on South Korea’s exports and the economy.”
The won has appreciated the most against the yen and US dollar this year among Asian currencies tracked by Bloomberg, helping ease the risk of drawing Trump’s ire.
The currency gains might be partly due to speculation that South Korean authorities will minimize intervention ahead of the US Department of the Treasury currency report due in April.
Lee said the South Korea’s current-account surplus has been due to imports falling on cheap oil and weak domestic demand, and structural factors such as aging.
That surplus is one of the factors the US considers when compiling the watchlist.
The BOK board yesterday unanimously decided to keep the policy interest rate at 1.25 percent and said the economy will grow at a mid-2 percent range this year.
That is the same as the 2.5 percent projection last month, with consumption likely to fall below forecast, but exports and investment doing better.
The central bank would keep its accommodative monetary policy stance, according to the statement.
The economy looks to be improving, but the political corruption scandal surrounding South Korean President Park Geun-hye has ensnared the heir to Samsung Electronics Co, the nation’s biggest business empire. With the future of Park still unclear, there is a power vacuum at the top of the country and consumer confidence has slumped to near an eight-year low.
South Korea’s household debt soared to a record 1,344.3 trillion won (US$1.2 trillion) at the end of last year, bolstering analysts’ views that the central bank will not cut rates further for now, as doing so would fuel rising debt.
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