Central bank says it’s ready for currency volatility

Korea’s central bank is ready to actively cope with any increased currency volatility stemming from the Japanese yen’s sharp weakness that hurts Seoul’s exports, its chief said yesterday.

“If the won’s volatility increases, including a steep drop in the Japanese yen, active responses to minimize any negative impacts on exports and investor confidence should be taken as necessary via smoothing operations and macro-prudential measures,” Bank of Korea Gov. Kim Choong-soo said in a meeting with foreign correspondents.

His remarks came as the Japanese yen sharply weakened to the U.S. dollar on quantitative easing steps, making the value of the local currency stronger against the yen and hurting price competitiveness of Korea’s products.

Market expectations are growing that the foreign exchange authorities may unveil stronger macro-prudential measures to smooth out excessive flows of foreign capital.

The governor also said that it is not proper for market players to have an excessive bet for the direction of monetary policy as BOK board members decide on the rate policy with the latest available data on a monthly basis.

His remarks came as the BOK froze the key interest rate at 2.75 percent for the third straight month on Friday as some economic indicators show signs of improvement despite the protracted economic slowdown.

The BOK also cut its 2013 growth outlooks to 2.8 percent from its earlier estimate of 3.2 percent on the same day. The governor said that the growth estimates were lowered, but the Korean economy is largely on the growth track, not deviating much from its forecast in October.

“It is not proper [for market players] to have expectations for a rate change. But [that does] not necessarily [mean] a rate cut, and all possibilities are open.”

The governor said that policy effects are maximized when monetary and fiscal policies go together.

“When monetary and fiscal policies are coordinated, the effects of such a policy mix would increase. But it is also important to properly balance policies within the limit of each institution’s policy mandate.”

The incoming government of President-elect Park Geun-hye is widely expected to take economic stimulus measures with pledges to expand social welfare programs.

Yonhap