Seoul: Bank of Korea (BOK) Governor Rhee Chang-yong stated on Wednesday that while the current won-dollar exchange rate does not signify a traditional financial crisis, it poses significant concerns due to its potential impact on inflation and social inequality. The Korean won has been trading near a yearly low recently, staying below the critical 1,450 won mark, driven by substantial foreign investments by local investors and the selling of local shares by offshore investors after recent gains.

According to Yonhap News Agency, as of 2:30 p.m., the won was quoted at 1,479.3 per dollar, a decrease of 2.3 won from the previous session amid the foreign equity selling, nearing its weakest level since April 9 when it closed at 1,484.1 won. Governor Rhee emphasized that although the current foreign exchange market situation does not involve financial institutional failures or sovereign default risks, it can be considered a crisis due to its significant impact on inflation and the challenges it presents to social cohesion.

In a statement released by the BOK, it was highlighted that the pass-through effect of the weak currency on prices "could intensify if the exchange rate stays at around the current level of 1,470 won through next year." The BOK's latest inflation forecast for next year, presented last month, stands at 2.1 percent. Consumer inflation has already increased, rising from 2.1 percent in September to 2.4 percent in both October and November, driven by escalating prices of agricultural and petroleum products, alongside a surge in service prices due to robust holiday demand.

The central bank noted that prices for livestock products have begun to reflect currency effects, influenced by higher imported beef prices, while fishery product prices could also become more volatile based on exchange rate movements given their high import share. Despite these concerns, core inflation, which excludes food and energy prices, is likely to remain stable at around 2 percent in 2026, reflecting the modest pace of economic recovery. The ongoing economic recovery, primarily driven by the semiconductor and other technology sectors, is expected to exert limited upward pressure on inflation.

Global oil prices, which significantly influence core goods prices, are anticipated to decline temporarily, contributing to downward pressure on inflation. "Inflationary pressure is projected to emerge mainly in non-core items, such as food and energy, which have a higher import share than core items," the central bank stated.