SEOUL, Oct 29 (Reuters) – A voting member on the Bank of Korea’s board warned that the recent pace of the won’s moves warranted close monitoring, signalling caution over the currency even as the export-reliant economy benefits from booming demand for AI chips.
“With the exchange rate, you have to look at volatility and the speed of its moves rather than the level,” Hwang Kunil said in an interview with Reuters. “The pace of the recent move has been somewhat faster than expected. We are watching volatility closely.”
“That said, once the massive current account surplus and foreign investment rebalancing are adjusted, downward pressure on the exchange rate remains valid.”
Hwang, a former deputy finance minister and World Bank executive director, said the won’s recent gains came as surging dollar inflows from the global artificial intelligence buildout fuelled demand for specialised memory chips from top Korean chipmakers SK Hynix and Samsung Electronics.
Hwang is viewed by analysts as one of the most dovish members of the central bank’s seven-member board. He opposed August’s quarter-point hike in interest rates, which highlighted a debate over how far tightening should go.
This is his first interview since joining the board in February 2024, marking the first time he has detailed monetary policy trade-offs amid Asia’s fourth-largest economy’s massive current account surplus.
A veteran financial diplomat for South Korea, Hwang managed the country’s currency policy during US President Donald Trump’s first term, navigating intense pressure when Washington accused Seoul of engineering excessive current-account surpluses.
The BOK held interest rates steady at 3.00% this month following back-to-back hikes in July and August, but left further tightening on the table amid inflation risks due to energy prices and a resilient economic recovery.
The won gained about 13% against the greenback in the third quarter, logging the sharpest rise in value since the fourth quarter of 1998. While a strong currency traditionally buffers import costs, Hwang noted that exports remain the bedrock of the country’s macroeconomic structure.
“It’s not what it used to be, but exports are still the backbone of our economic structure,” he said.
UNEQUAL GROWTH
On the domestic price outlook, Hwang projected that headline consumer price inflation would start approaching the central bank’s 2.0% target towards the end of the first half of 2027. He expects inflation to be fully stabilised at the target by the end of next year or early 2028.
“What we need to focus on right now is, of course, the trajectory of inflation,” Hwang said.
While he expects blistering export momentum to continue for the time being, he expressed concern that the positive economic impact has not been distributed evenly.
Private consumption was recovering at a slower pace, while small and medium-sized companies continued to deal with elevated delinquency rates and weak domestic demand, he said.
“The positives are limited to certain groups, while high rates and prices affect everyone,” he said. “It depends on which side proves to be stronger.”
Hwang also expressed caution about the underlying quality of corporate financing for smaller businesses. Their delinquency rates were climbing, while much of their borrowing was going to cover immediate operating costs, such as wages and raw materials, rather than expanding capital investments.
Asked whether a slowdown in global AI spending could hurt export-led growth, Hwang said this year’s current-account surplus could be revised up to nearly $500 billion from the BOK’s August forecast of $450 billion.
A shortfall amounting to about a tenth of that, or $50 billion, would “of course” be a blow, he said, citing an earlier BOK projection on the potential implications of a slowdown.
“But this boom is likely to last somewhat longer,” he said.
(Reporting by Cynthia Kim; Editing by Ed Davies and Thomas Derpinghaus)
