Rhee Chang-yong, governor of the Bank of Korea, said on the 10th that he expects the won-dollar exchange rate, which has risen at a very fast pace, to fall quickly if the Middle East situation stabilizes.
At a press briefing held right after the monetary policy decision meeting that day, Rhee said, stated accordingly, that since the Middle East crisis, exchange rates have risen significantly, centered on Asia—Korea, Japan, and Taiwan—which are vulnerable to oil supply and demand.
As a reason for expecting a decline in the exchange rate, he cited an easing of the imbalance in foreign exchange supply and demand compared with the end of last year. At that time, the exchange rate jumped due to the expansion of overseas investment by so-called "Korean retail investors trading U.S. stocks," and the foreign exchange authorities also intervened in the market.
He said that when the exchange rate rose to the upper 1,400-won range at the end of last year, it moved much faster than the rise in the dollar index (DXY), calling it a phenomenon that emerged as overseas investment by "Korean retail investors trading U.S. stocks" surged threefold. He added that if there had been no intervention, the current level would have risen further.
He went on to say that this year's rise in the exchange rate has been led by increased dollar volatility due to the Middle East situation and by foreign investors' stock selling, noting that this differs from November and December of last year, when supply-demand imbalance was the main factor. He added that recently, with Korea's inclusion in the World Government Bond Index (WGBI) increasing the possibility of inflows of overseas capital and with "Korean retail investors trading U.S. stocks" also returning to the domestic market, there is a possibility the exchange rate will fall quickly.
Regarding the sharp rise in the exchange rate during his tenure as governor, he said it was not a problem unique to Korea, noting that as the United States took a giant step (a 0.75 percentage point rate hike) and the DXY climbed, the exchange rate also rose from the 1,200-won range to the 1,400-won range, and that it is difficult to see it as a problem simply because it reached the 1,400-won range without considering the context.
On the suggestion that the 1,400-won range could become entrenched due to population aging, he drew a line, saying he found it hard to agree. He said that Japan, which is in a situation similar to Korea, is often cited as an example, but the yen depreciated as Japan maintained low interest rates after Abenomics and continued an expansionary currency policy, adding that it is still premature to conclude that the exchange rate will become entrenched at a high level because of aging.