South Korea?s finance minister has asked the Bank of Korea to act more aggressively to limit the won?s rise against the dollar, in a sign that the government is growing increasingly alarmed at the strong currency?s effect on the export-driven economy.
Finance minister Lee Hun-jae on Monday met Park Seung, governor at the Bank of Korea (BoK), and said the central bank should ?take a more aggressive role? in the foreign exchange market, a ministry spokesperson said.
The request, which came as the won hit a seven-year high against the dollar, suggests a shift in the minister?s stance on the won?s sharp appreciation. Mr Lee told the Financial Times only last week that markets rather than authorities should set the won?s exchange rate.
After the unusual meeting between Mr Lee and Mr Park, an official at the BoK?s currency team repeated that the won?s recent gains were ?excessive.?
?The won?s appreciation has been faster than other regional currencies, because of local companies? anxiety [about the exchange rate],? said Oh Jae-kwon, head of foreign exchange at the bank.
The won settled to 1,065.3 per dollar on Monday after hitting 1,060 in the morning, its highest level since the onset of the 1997-98 financial crisis. It gained about 6 per cent this month and about 12 per cent this year. Dealers suspected dollar buying by state-run banks helped trim the won?s gains.
?If we leave it to market forces, the dollar should fall further, unless the US [economic] policy changes,? said a local bank trader. ?Everyone is waiting for government intervention so that they can sell dollars.?
The BoK spent about $4bn two weeks ago to temporarily curb the local currency?s appreciation, as the stronger won was feared to weaken exports, the key driver of growth in Asia?s fourth-largest economy. Exports, which comprise about two-fifths of the economy, rose 21 per cent to $22.9bn in October, but it was the smallest gain in 11 months.
The finance ministry has shied away from active intervention in the currency market in the past month after it was criticised by lawmakers for the heavy cost of keeping the won undervalued. But on Monday it issued Won1,000bn in extra treasury bonds to stabilise the won, on top of Won2,000bn already issued this month.
?It was inevitable that the ministry needed cooperation from the BoK, as the won gained too much recently, clouding the economic outlook,? said Kang Sam-mo, a researcher at the Korea Institute of Finance.
The minister conceded last week that economic growth was likely to fall short of the government?s 5 per cent target this year, as domestic demand, which the government had hoped would offset slowing export growth, was not bouncing back as expected.