Exchange rates re-emerge as major factor in rate decision: Bank of Korea Guv

Seoul, Oct 28
Bank of Korea (BOK) Governor Rhee Chang-yong said exchange rates have emerged as a major factor again in deciding on policy rates, according to the central bank on Sunday.

The central bank governor made the remarks in a press conference on the sidelines of meetings of Group of 20 finance ministers and central bank chiefs, and the International Monetary Fund-World Bank Group in Washington, DC.

"The exchange rates have risen far above what we hoped for, and the pace of (the dollar's) growth (against the won) is faster than expected," the BOK governor said, adding exchange rates were factored in the central bank's latest rate decision this month, reports Yonhap news agency.

On October 11, the BOK cut its benchmark interest rate by 25 basis points to 3.25 percent, marking the first reduction since August 2021. The central bank's decision came after the US Federal Reserve made a half percentage-point rate cut last month.

"We expected the U.S. pivot to help stabilize the (dollar-won) exchange rates, but the dollar rallied further in the past two weeks on a strong U.S. economy and investor bets that Donald Trump's chance of winning next month's presidential election is high," he said.

In the next month's rate-decision meeting, the BOK will consider the impact of the slowing pace of export growth on the economy, macroeconomic policies' effect to stabilize the financial market and a possible dollar rally even after the U.S. presidential election in its monetary policies, the governor said.

Still, Rhee said the country's growth rate is not a factor in setting out the policy rates. "South Korea's economy is expected to grow at least by more than 2 percent for the year even if the country reports a poor growth rate in the fourth quarter," he said.

The country's real gross domestic product -- a key measure of economic growth -- gained 0.1 percent on-quarter in the July-September period.

As for the third-quarter growth that barely avoided contraction, the governor said there is "no need to overreact" to such quarterly volatility.