SEOUL, Dec 10 (Reuters) – A board member of South Korea’s central bank said on Wednesday foreign exchange authorities need to take action to curb the won’s decline against the dollar, as it may reignite inflationary pressure and weaken retail purchasing power.
“As forex authorities, we can’t sit and do nothing about this high FX rate and we need to think of measures in terms of (adjusting) supply and demand,” Kim Jong-hwa, one of the seven voting members at the Bank of Korea’s monetary policy board, said in a news conference.
“With a rising FX rate, exporters with insufficient currency hedging capacity or small-to-medium-sized companies which cannot pass on the higher costs of intermediate goods (to consumers) will struggle,” said Kim.
“A rising FX rate also leads to higher inflation and a decline in purchasing power,” he said.
Kim’s comments come as policymakers have been increasingly voicing their concerns in a bid to reverse some of the currency’s recent slide against the dollar, amid fears that the end of South Korea’s policy-easing cycle could coincide with fewer-than-expected U.S. interest rate cuts, keeping the rate differential between the economies wide.
The BOK has left rates unchanged at recent policy meetings, keeping the gap with the U.S. at two percentage points, the highest since 1999.
The won, which is down about 5% against the dollar this quarter, recently traded near a 16-year low amid outflows stemming from domestic investors boosting holdings of overseas equities.
Kim did not elaborate on possible policy measures that could be taken to curb the won’s decline.
The BOK, the finance ministry, the welfare ministry and the National Pension Service recently kicked off a four-party consultative group to build a “new framework” for the fund to balance returns and foreign exchange stability.
On Tuesday, South Korea said the NPS was studying ways to raise dollars, including by issuing dollar bonds in the offshore market.
(Reporting by Seunggyu Lim, Cynthia KimEditing by Ed Davies)
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