[Exchange Rate 1400 Won] Choo Kyung-ho "Thoroughly Managing Exchange Rate Price Variables" Full-Scale Defense (Comprehensive)

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is speaking at the Emergency Macroeconomic and Financial Meeting held at the Bankers' Hall in Jung-gu, Seoul on the morning of the 22nd. 2022.9.22 Photo by Yonhap News

[Asia Economy Sejong=Reporters Son Seon-hee and Moon Je-won] Choo Kyung-ho, Deputy Prime Minister for Economic Affairs and Minister of Strategy and Finance, stated on the 22nd, "We will meticulously manage the detailed factors affecting price variables behind the exchange rate level." On the same day, the won-dollar exchange rate surpassed the 1,400 won mark for the first time in about 13 years since the financial crisis.

On the morning of the 22nd, Deputy Prime Minister Choo held an ‘Emergency Macroeconomic and Financial Meeting’ at the Bankers’ Hall in Jung-gu, Seoul, and regarding the recent sharp rise in the exchange rate, he said, "We will take multifaceted measures tailored to market conditions to alleviate foreign exchange supply and demand imbalances, such as the overseas investment flows of domestic residents including pension funds, and resolving foreign currency funding difficulties faced by export and import companies."

Right after the opening of the Seoul foreign exchange market that day, the won-dollar exchange rate rose to the 1,400 won level. The last time the exchange rate recorded the 1,400 won level was on March 31, 2009 (high of 1,422.0 won) during the financial crisis, marking 13 years and 6 months since then.

In a Q&A session following the emergency meeting, when asked about the outlook for future exchange rate trends, Deputy Prime Minister Choo refrained from commenting directly, saying, "It is not appropriate for an official to make direct remarks." However, he emphasized, "We are monitoring under the principle of taking timely and appropriate measures. Recently, there has been a phenomenon where dollar demanders are pre-purchasing and sellers are delaying sales, and speculative sentiment betting on exchange rate increases is expanding. We plan to actively respond to such one-sided imbalances." He added, "The government will strictly adhere to the principle of mobilizing all available means considering market conditions and responding firmly and swiftly when necessary."

Earlier that day, the U.S. Federal Reserve raised its benchmark interest rate by 0.75 percentage points following the Federal Open Market Committee (FOMC) regular meeting. This marks the third consecutive 0.75 percentage point rate hike following those in June and July, and the benchmark interest rates between South Korea (2.50%) and the U.S. (3.00?3.25%) have reversed again.

Regarding this, Deputy Prime Minister Choo said, "The Fed’s future tightening path has exceeded the market’s initial expectations, and growth forecasts have been significantly downgraded, causing some volatility in the international financial markets early this morning. We will actively manage short-term volatility."

He continued, "Currently, the economic team is closely examining the impacts on financial and foreign exchange markets and the real economy under various scenarios such as the Fed’s high-intensity tightening, accelerated economic slowdown in China, and rising risks of emerging market crises. We are monitoring key indicators that can detect crisis signs in real time. Based on past economic and financial crisis policy response experiences, we have comprehensively and systematically prepared available policy tools to be swiftly deployed and will implement market stabilization measures by sector and stage as needed in a timely manner."

Furthermore, he said, "The Ministry of Strategy and Finance, Bank of Korea, Financial Services Commission, and Financial Supervisory Service will maintain close cooperation and keep a ‘broad and long-term perspective’ in responding to the current situation. We also intend to consider trends beyond next year and seek the ‘optimal policy mix.’" This statement appears to reflect awareness that the U.S. high-intensity tightening may be prolonged, as Federal Reserve Chair Jerome Powell previously strongly indicated his determination to maintain the rate hike stance until inflation is firmly controlled.