The exchange rate is the most intuitive and comprehensive indicator of a country’s economic situation. The foreign exchange crisis of 1997-1998 and the financial crisis of 2008 also began with a rise in exchange rates. I am shocked when I see the lid of the pot, and I am filled with fear when I hear the news that the won-dollar exchange rate has skyrocketed.
The won-dollar exchange rate, which had been increasing day after day, rose to the 1,400 won level at one point on the 16th. The decline in expectations of an interest rate cut in the United States and the war clouds over the Middle East had a direct impact. Foreign investment funds fled the stock market, causing stock prices to plummet. As the value of the won fell, foreigners sold Korean stocks in the stock market, which in turn increased the rate of exchange rate appreciation in the foreign exchange market. The authorities did their best to defend the exchange rate and stabilize the financial market. Unusually, Shin Jung-beom, director of the International Finance Department of the Ministry of Strategy and Finance, and Oh Geum-hwa, director of the Bank of Korea’s International Department, jointly intervened verbally in the market. There was some mild activity on this day, but it is doubtful whether the market will react in the future.
It is highly likely that the upward trend in the exchange rate will continue for some time. Foreign investors made net sales worth 1.2 trillion won in the futures market on this day alone. This means that they are betting on a rise in the exchange rate. Above all, the fact that Korea’s base interest rate (3.5% per year) is 2 percentage points lower than that of the United States, a key currency country, heightens anxiety. Even so, import prices have been on the rise for the past three months, and if the recent rise in exchange rates and international oil prices are reflected, the pressure to increase prices will increase in the future. The best option is to raise the base interest rate to increase the value of the won, but last week the Bank of Korea held a Monetary Policy Committee meeting and froze interest rates. This has been the same decision for 10 consecutive times since January of last year. Considering the economic downturn and the interest burden on households and businesses, it is not easy to raise interest rates.
The Korean economy is already in dire straits due to the worst inflation, soaring international oil prices, a huge fiscal deficit, and an economic growth rate that lags even that of Japan. The exchange rate exceeding 1,400 won proves this. Coincidentally, President Yoon Seok-yeol, who had been living in seclusion after the general election, appeared before the public on this day. President Yoon announced that he had no intention of changing or reforming economic policies despite the ruling party’s crushing defeat. At this point, I think we should add President Yoon to the list of economic risks.
As tensions in the Middle East increased due to Iran’s airstrikes against Israel, the KOSPI index plummeted in the stock market on the 16th, and the won-dollar exchange rate in the foreign exchange market exceeded 1,400 won per dollar during the day. Reporter Seong Dong-hoon
