BOK board member flags won volatility despite AI chip export boom - RTRS

A Bank of Korea board member has highlighted the need for careful monitoring of the won's recent movements, as its rapid appreciation has raised concerns. In the third quarter, the South Korean currency surged 13% against the U.S. dollar, reaching its strongest quarterly gain since 1998, according to Reuters. Hwang Kunil, the board member, emphasized that the speed and volatility of exchange-rate fluctuations are more significant than its absolute value, noting that the recent pace of change exceeded expectations.

Hwang linked the won's gains to increased dollar inflows stemming from the worldwide AI boom, which has driven up demand for memory chips produced by South Korean firms such as SK Hynix and Samsung Electronics. He indicated that the AI-driven expansion is anticipated to persist for an extended period. However, Hwang cautioned that the export surge has yet to trigger a comprehensive economic recovery in South Korea.

Private consumption is advancing cautiously, while small and medium-sized enterprises continue to grapple with elevated delinquency rates and feeble domestic demand, according to Hwang.

The country's current account surplus is projected to reach nearly $500 billion this year, surpassing the Bank of Korea's August forecast of $450 billion, noted Hwang. Regarding monetary policy, Hwang expects headline consumer price inflation to align with the central bank's 2% target by the end of the first half of 2027. He further stated that inflation should stabilize at this level by the end of 2027 or early 2028.

Hwang, appointed to the Monetary Policy Board in February 2024, is recognized as one of its more dovish members, having voted against a quarter-point rate increase in August. The Bank of Korea maintained its policy rate at 3.00% this month following rate hikes in July and August.

Hwang's remarks underscore the policy conundrum confronting South Korean authorities, as robust technology exports and currency movements coexist with a sluggish rebound in domestic demand.