BOK's Lee Says Can't Exclude Possibility of FX Manipulator Label

  • Lee says Korea is explaining its case to U.S. officials
  • Korean authorities closely monitoring currency movements

South Korea can’t rule out the possibility that the U.S. labels it a currency manipulator but the chances are low, Bank of Korea Governor Lee Ju-yeol said.

Lee said it is important to avoid being named a manipulator, and Korean officials were explaining to U.S. officials the factors behind the country’s trade surplus and how the foreign-exchange market functions.

“But I noticed at the Group of 20 gathering that the U.S. is emphasizing transparency of currency policy, in which case we can’t exclude the possibility,” he said at a press briefing in Seoul on Thursday, referring to the G-20 meeting in Germany this month. 

The U.S. Treasury Department is scheduled to release its currency report next month. It named South Korea to the watch list in October, citing its trade and current-account surpluses. The won is the best performer among Asian currencies this year, appreciating 7.6 percent to 1,122.25 per dollar as of the market’s close on Thursday.

President Donald Trump hasn’t directly criticized Korea’s currency management but during his campaign said bilateral trade with the country is costing the U.S. jobs.

If Korea is named a currency manipulator, the next step would be to engage in bilateral talks with the U.S. in an effort to convince the U.S. to remove the label as soon as possible, Lee said, adding that South Korean officials have maintained that the exchange rate is determined by the market and economic fundamentals.

Lee said recent volatility is due to the won’s liquidity, low transaction costs, and the openness of Korea’s currency market, and doesn’t reflect any economic weakness. Authorities will continue closely monitoring currency movements, Lee said.

Thursday’s briefing was held to increase communication after the BOK reduced the number of policy meetings this year to eight from 12. The central bank has kept its key rate at 1.25 percent since June 2016.

China, U.S.

China’s restrictions on Korean businesses over a U.S.-led missile defense system is affecting the tourism sector, services exports and related jobs, Lee said.

“The BOK will reflect the impact of such measures by China when we review the economic outlook next month,” Lee said. “Gauging the impact won’t be easy, as it depends on how China’s stance changes.”

In January, the BOK forecast the economy will grow 2.5 percent this year and inflation rise 1.8 percent.

Lee said faster-than-expected rate increases by the Federal Reserve could destabilize some emerging market countries and have spillover effects on Korea. He said Korean markets have been stable after Fed’s rate increase in March.

The central bank is concerned that household debt, which hit a record 1,344.3 trillion won ($1.2 trillion) at the end of last year, has reached a level that can slow economic growth, Lee said.

“There is consensus between the board and the government that the pace of the debt increase needs to be contained, and that efforts to improve the structure of debt should continue as the ratio of floating-rate loans is still high,” he said. “Also, measures to help lower-income debtors who are vulnerable to interest rate increases need to be considered.”