USD-KRW Exchange Rate Hits Highest in Over 4 Years... Concerns Rise Over Foreign Capital Outflow

Intraday Exchange Rate Surges to 1,240 Won Level

Due to the impact of the novel coronavirus infection (COVID-19) pandemic, the global stock markets plummeted, and the KOSPI index opened at 1,640.84 on the 17th, down 74.02 points (4.32%) from the previous trading day (1,714.86). Dealers are busy working in the dealing room of Hana Bank in Jung-gu, Seoul. On the same day, the won-dollar exchange rate opened at 1,231.0 won, up 5.0 won from the previous trading day (1,226.0 won). Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Jang Sehee] Despite the Bank of Korea's interest rate cut the previous day, the won-dollar exchange rate hit its highest level in over four years on the 17th. In particular, concerns about large-scale capital outflows are emerging as anxiety intensifies among foreign investors.

In the Seoul foreign exchange market, as of 9:20 a.m. that day, the won-dollar exchange rate stood at 1,238.3 won per dollar, up 12.3 won from the previous day. The exchange rate started at 1,231.0 won, up 5.0 won, then sharply increased. Early in the session, the rate even surged to 1,240 won. It was the first time since February 29, 2016 (1,245.3 won) that the intraday exchange rate rose to the 1,240 won level.

In the market, although the Bank of Korea took a surprise base rate cut, concerns are rising that this will accelerate foreign capital outflows. Seo Youngsoo, a researcher at Kiwoom Securities, pointed out, "In a situation where financial market volatility is increasing, the base rate cut could accelerate foreign investor capital outflows." He noted, "Following the outflow of foreign stock funds, sales of short-term investment funds such as Monetary Stabilization Bonds are increasing, and swap spreads are plunging."

Furthermore, although central banks around the world, including the Fed, have taken measures such as lowering the base rate by 1 percentage point from 1.00%-1.25% to 0.00%-0.25%, there are also criticisms that these measures have not dispelled concerns about an economic recession caused by COVID-19. Kim Soyoung, a professor of economics at Seoul National University, analyzed, "It seems that the Fed's rate cut has had the effect of expanding instability," adding, "Investors previously did not realize the risks in the financial market, but as interest rates dropped to the 0% level, they began to perceive it as similar to the financial crisis."

As the government faced increased financial market volatility, including a sharp rise in the exchange rate, it held an emergency macroeconomic and financial inspection meeting that morning. Kim Yongbeom, the first vice minister of the Ministry of Economy and Finance, stated, "Since there is a possibility that the negative impact on the real economy will become full-fledged, the possibility of additional financial market instability cannot be ruled out." Vice Minister Kim expressed concern, saying, "As the global financial market and real economy impacts are expected to continue for some time due to the spread of COVID-19, there is a possibility of facing a complex crisis in both the real and financial sectors that we have never experienced before." The government emphasized that it will proactively inspect risk factors in each sector of the financial system and swiftly and decisively implement market stabilization measures in a timely manner.

This content was produced with the assistance of AI translation services.