Seoul: The recent volatility and weakness of the Korean currency against the U.S. dollar, triggered by the ongoing Middle East crisis, are not viewed as a critical issue, though increasing oil prices may lead to inflation and impede economic growth, according to a central bank board member.
According to Yonhap News Agency, Lee Soo-hyung, a member of the Bank of Korea's (BOK) Monetary Policy Board, addressed this during a press briefing in Seoul. The won has depreciated significantly against the dollar since the beginning of this month, following U.S.-Israeli military actions in Iran and escalating regional tensions.
On Monday, the won hit the significant psychological threshold of 1,500 won per dollar for the first time since March 2009, a period when South Korea was struggling with the global financial crisis. Lee pointed out, "Despite the won's depreciation, it is difficult to view this as a problem unique to us. There is also an aspect where the won is used as a proxy hedging instrument for the Taiwan dollar among East Asian countries."
She further explained, "Given the overall foreign exchange supply and demand conditions, the current exchange rate level does not yet warrant excessive concern."
Lee also mentioned that the Middle East crisis is not anticipated to have a significant impact on the semiconductor upcycle at present, and South Korea's current account surplus remains stable. She emphasized, "It is too early to conclude that there is a divergence from our economic fundamentals. Both the government and the BOK have measures in place to stabilize supply and demand expectations and provide reassurance."
The won depreciated 3.84 percent against the dollar from the start of the month through Saturday, marking a sharper decline compared to other major Asian currencies. In comparison, the Japanese yen and Chinese yuan fell by 2.39 percent and 0.79 percent, respectively. Discussing the broader economic impact, Lee noted that the Middle East crisis could elevate inflation while exerting pressure on economic growth.
"Given rising global oil prices, it is clear that the crisis poses upside risks to inflation. Higher raw material prices act as a downside factor for growth," Lee stated. However, she also remarked, "Forecasts on how long this situation will persist continue to change, making it difficult to assess the actual impact on the economy," while assuring that the authorities will keep a close watch on the developments.
The central bank projects the economy to grow by 2 percent in 2026, with consumer inflation expected to increase by 2.1 percent. These projections are based on the assumption that Brent crude will average around $64 per barrel this year.