Posts tagged ‘Bank of Korea’
On 26 October 2011, the Bank of Korea (BOK) announced that it had reached an agreement with the People’s Bank of China (PBC) to almost double the won-yuan swap arrangement from USD33.7billion to USD56.5 billion. Read more
In September 2011, ROK foreign-exchange reserves declined 2.8 percent (USD8.81 billion), from USD312.2 billion to USD303.4 billion. This is the biggest monthly fall since reserves declined by USD11.75 billion in November 2008, when the government poured dollars into the currency market to stem the currency’s decline at the height of the global financial crisis. Read more
On 19 September 2011, Finance Minister Bahk Jae-Wan stated that significant amounts of European capital had been withdrawn from local markets, including the bond and stock markets, as a result of the ongoing euro-zone debt crisis. Bahk noted that the outflows do not currently pose a significant risk to stability, however the ministry continues to closely monitor the situation. Read more
The Bank of Korea’s interest rate decision on 10 March 2011 has attracted the attention of the world media. Korean interest rate decisions are traditionally limited to minor factual, one column articles on the fourth or fifth page of international English language newspapers. Read more
On 4 March 2011, the Bank of Korea (BOK) launched the expansion of the Reserve Management Group –the department in charge of managing foreign exchange reserves. The expanded department, headed by Hong Taeg-Ki, aims to strengthen expertise and ultimately achieve better reserve management. Read more
On 11 February 2011, the Bank of Korea (BOK) announced interest rates would be held at 2.75 percent. The BOK maintained its cautious approach, indicating more time was needed to assess the impact of January’s 25 basis point benchmark rate rise.
A key underlying consideration in the decision is thought to be the effect that a rate rise would have on household debt. Korea’s already high household debt levels, which in part stem from an inflated property market, have risen further with the combination of low interest rates and the economy’s rapid recovery from the global financial crisis. However, concerns remain.
Incomes and assets are still rising and credit remains relatively easy to access. More alarmingly, figures on credit card issues for 2009-10, indicate an upsurge in the number of credit cards issued to consumers with poor credit reports, as lower-income households turn to non-bank lending institutions.
As yet, comparisons with the 2003 credit card lending crisis are unfounded. In 2003, credit card lending skyrocketed, whilst issuers were on the brink of collapse. As asset quality deteriorated and liquidity and solvency challenges became more difficult, the banking sector and financial markets were exposed to systemic risk, which ultimately affected the real economy.
Regulators and bank lending institutions are this time more aware that the stay on interest rates merely defers concerns regarding household debt and action to address the issue is cautiously being prepared.
On 8 February 2011, USD-KRW trade once again approached the psychological KRW1100 level, sparking rumours of covert intervention by the Bank of Korea (BOK).
The potential for interference in the market has attracted greater pressure from both Japan and the United States. The USD-KRW traded at a low of KRW1100.75 and at a high of KRW1105.60. The KRW1100 mark was last reached in mid-July 2008, two months prior to the start of the global financial crisis.
In 2010, the USD-KRW traded at an average of KRW1157.42. In April and November 2010, when trade did approach the KRW1100 level, the BOK has exerted a degree of control to avoid instability. The market currently expects the won to rise. The government affiliated think-tank, the Korea Development Institute (KDI) estimates the won will trade at an average of KRW1023 in 2012 achieving an average of KRW980 by 2014.
A stronger currency in the longer-term will impact Korea’s export driven economic recovery and will have a particularly deleterious effect on small to medium-sized enterprises (SMEs) with larger firms, such as Samsung and Hyundai Motor, already in a position to relocate production overseas.
This presents a dilemma for the Lee administration, which must balance calls from SME exporters to slow and/or delaying currency appreciation with increased pressure from Japan and the United States to limit interference in the market.
