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Forex rate won't trigger crisis, but inflation and inequality at risk, says BOK chief as won hits its weakest in 8 months

Published: 17 Dec. 2025, 18:16 Updated: 17 Dec. 2025, 20:07

JIN MIN-JI
[email protected]

Bank of Korea Gov. Rhee Chang-yong speaks in a press conference on inflation held in central Seoul on Dec. 17. [BOK]

The won surged past 1,480 against the dollar on Wednesday, defying months of government efforts to support the currency and stoking inflation worries, though the central bank says the rate is not at the level of a financial crisis.

The won reached 1,481.9 in the morning before it was quoted at 1,479.8 per dollar as of 3:30 p.m., the weakest level in eight months when it closed at 1,484.1 won on April 9. The won has remained weak despite the government’s effort to create a task force to stabilize the currency and the National Pension Service’s (NPS) recent decision to extend its strategic foreign exchange hedging program and $65 billion swap agreement with the Bank of Korea (BOK) through the end of next year.

But the current rate does not signal a financial risk as in the past, the central bank said.

The current exchange rate “could be described as crisis-level and is a source of serious concerns” in terms of inflation and growth polarization, said the BOK Gov. Rhee Chang-yong at a press conference on inflation held in central Seoul on Wednesday. “But it does not amount to a traditional financial crisis as seen in the past,” which led to the collapse of financial institutions and heightened the risk of a sovereign default, taking into account Korea's foreign reserves and its foreign asset surplus.

Rhee added that the weak won could have a significant impact on both inflation and inequality, with exporters benefiting and importers placed at a disadvantage. He explained that the current foreign exchange rate is not a level the central bank feels comfortable with, given growing polarization in economic growth that is creating an environment in which social cohesion becomes more challenging.

Signs display exchange rates at a currency exchange booth on Myeongdong Street in central Seoul on Nov. 26. [JOONGANG ILBO]

In terms of inflation, consumer prices rose 2.4 percent in November from a year earlier, remaining above the 2 percent since September, driven by increased demand for travel around the Chuseok harvest holiday in October and higher prices for fruits and vegetables, according to the central bank. The BOK projects consumer prices to grow 2.1 percent next year.

Rhee added that it may be necessary to make adjustments to not only on volatility but also on the level of exchange rates.

As the market rattled, the NPS tapped the currency swap with the foreign exchange authorities, though the exact amount and duration have not been confirmed, according to a Yonhap report.

The pension fund recently extended the $65 billion swap agreement with the BOK through the end of next year, amid the government’s will to strengthen the won against the dollar. The foreign exchange authorities expect that the currency swap can help stabilize the market as the NPS can obtain dollars through the central bank's foreign exchange reserves instead of buying them on the market.

Meanwhile, the Ministry of Economy and Finance, the Ministry of Health and Welfare, the NPS and the BOK have formed a four-party consultative body aimed at aligning the national pension fund’s investment returns with market stability and mitigating volatility in the foreign exchange market.

BY JIN MIN-JI [[email protected]]