SEOUL, Oct 7: South Korea believes the won will be in an ‘extraordinarily’ balanced state for a considerable period and is determined not to intervene to weaken it to boost exports, top policymakers told Reuters.
Exports and imports both fell in September from a year earlier, although not as sharply as markets had expected, supporting views the central bank will cut interest rates again this week.
But the officials said exports were more resilient than headline numbers indicated, noting for example that fewer deliveries of big-ticket items such as new ships could skew the data.
Recent monetary policy easing in major economies will not likely cause heavy capital inflows, they added.
The won has firmed nearly 4 percent against the U.S. dollar so far this year, but is still cheaper than the currencies of its trade rivals such as Japan and China when measured over a longer period, and the current account is firmly in surplus, they said.
The remarks, made in recent weeks on separate occasions, came amid further signs of weakening domestic demand in South Korea, even as external demand continued to deteriorate in the face of Europe’s long debt crisis and a slowdown in China.
‘That will do more harm than good,’ Finance Minister Bahk Jae-wan told Reuters recently, when asked if he would seek to weaken the won to boost exports, while describing the won as being in an extraordinarily balanced state.
‘On one hand, we have the mission of entering into an advanced economy’s status. We have to enter into an advanced economy’s status and (regarding that) there is an issue of imbalance between domestic demand and exports,’ he added.
WON ALREADY CHEAP
The won ended local trade up 0.2 percent at 1,111.3 per dollar on Friday, bringing its gains so far this year to 3.6 percent against the dollar and 6.2 percent against the yen in terms of the cross rate.
But compared to five years ago, the won’s value measured in real, trade-weighted terms is more than 40 percent cheaper than the yen and about 30 percent cheaper than the Chinese yuan , Thomson Reuters Starmine data shows.
South Korea is in fierce competition with Japan and China in major export markets for products ranging from cars and ships to electronics and industrial machinery, and policymakers often face domestic political pressure to keep their currencies weak.
An International Monetary Fund official told Reuters after meetings with South Korean authorities last month that officials in Seoul agreed the won was modestly undervalued and would not probably seek to weaken it further.
‘We had this discussion with the authorities and (they) agreed the won is moderately undervalued,’ Hoe Ee Khor, the IMF’s assistant director of Asia and Pacific Department, said in an interview at that time.
South Korean exports for January-September fell 1.5 percent from the same period a year earlier, but would have posted a gain without the reduced ship deliveries and relocation abroad of some mobile phone production lines, government data shows.
Fewer new ships are being delivered due to the shipping markets’ slump several years ago, which reduced the number of orders.
‘Exports are not so weak in fact, and a weaker won would do little to boost exports in this environment,’ said one finance ministry official, while refusing to be identified.
(AGENCIES)
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