Bank of Korea Governor Lee Chang-yong said on Friday that the bank’s possible policy actions to support the gain are closely linked to the situation in the Middle East. The central bank is ready to intervene in the foreign exchange market if necessary.
Governor Lee’s comments came during an interview at a side event of the International Monetary Fund (IMF) and the G20 finance ministers meeting held in Washington.
Governor Lee noted that geopolitical tensions in the Middle East have entered a period of calm following Iran’s response to Israeli drone strikes. However, uncertainty remains a risk in the dollar-earned exchange rate market and could affect inflation in Korea.
The Bank of Korea is closely monitoring the situation, especially as recent tensions could adversely affect Korea’s exports and rising oil prices could raise inflation expectations.
Despite the fact that the gain reached a 17-month low, the South Korean authorities have issued a verbal warning and are preparing ‘stabilisation’ measures against speculative movements in the dollar-earned market. These measures were highlighted in a joint statement following a meeting between the three finance ministers of South Korea, the United States and Japan on Wednesday.
It was also emphasized that global demand for Korean semiconductors is robust and that Korean exports are showing better than expected growth. Nevertheless, the central bank is expected to review the impact of the weakening gained and the increase in oil prices on the economy and domestic demand. These factors will be considered in the Bank of Korea’s revised economic outlook, scheduled for release in May.
The Bank of Korea maintains significant foreign exchange reserves and other tools to respond to market volatility. This willingness to act has been emphasized through a series of verbal warnings from officers over the past week.
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