SEOUL, Nov 10: South Korea said on Saturday it will not yet take steps to counter the rally in the won, which has gained about 6 percent so far this year against the dollar, ranking it among the best performing currencies in the region.
‘We have regulatory measures in place that we can adjust if needed, but I think we are not in that serious situation yet (to tighten the measures),’ Vice Finance Minister Shin Je-yoon told Reuters by telephone, referring to measures adopted over the past two years to mitigate rapid capital flows.
‘We are closely watching the market as the won is appreciating at a time when a global currency war is taking place,’ Shin said, using the phrase that policymakers in some emerging-market economies refer to as an effort by countries to push their currencies down to support their exports.
Emerging-market economies have fretted over the massive capital inflow as a result of the ultra-loose monetary policy by the United States and other industrialised countries, that pushes up their currencies and short-term liquidity.
South Korea will examine foreign-exchange transactions by local branches of two foreign banks and by one domestic bank, an official said on Nov. 5, a move seen by some analysts as a precursor to tightening of ceilings on currency derivatives.
South Korea is Asia’s fourth-largest economy, but it is in a sustained slump due to the depressed global demand.
A firmer won could hurt the pricing power or reduce the profits on overseas sales by South Korean export companies but, on the other hand, could boost the purchasing power for domestic consumers and spur capital investment by companies.
Officials including Finance Minister Bahk Jae-wan have said they would not aggressively intervene to reverse the won’s appreciating trend, citing the risk of widening imbalances between internal and external economic activities.
South Korea’s economy saw quarterly growth almost halt in the July-September period despite increased spending by consumers and the government as companies, hit by a sustained weakness in exports, slashed investment in new production facilities.
(AGENCIES)
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