Cash Flow Tightens and Exchange Rates·Prices Fluctuate Again

Economic Turmoil Amid Complex Crises
Won-Dollar Hits Yearly High at Opening
Fluctuates, Threatening 1450 Won Level
Expected Inflation Rebounds After Three Months
Manufacturing Inventory Rate Stays Above 120% for Three Consecutive Months

[Asia Economy reporters Seo So-jeong and Moon Je-won] Amid the rapid cooling of the financial market due to the Legoland incident, the exchange rate and inflation, which had recently slowed down, have once again turned red. The won-dollar exchange rate is threatening the 1,450-won level, breaking its yearly high, and expected inflation has rebounded after three months. With unsold products piling up in warehouses, the domestic manufacturing inventory ratio has soared to levels comparable to the IMF foreign exchange crisis. As signs of a sweeping complex crisis intensify, concerns about the Korean economy are higher than ever, and voices warning that the pain of the economic recession will last for a long time are growing.

On the 25th, in the Seoul foreign exchange market, the won-dollar exchange rate started trading at 1,444 won, up 4.3 won from the previous day's closing price, immediately surpassing the intraday yearly high of 1,442.2 won recorded on the 28th of last month. This is the highest level in 13 years and 7 months since March 16, 2009 (1,488.0 won). After opening, the exchange rate rose to a high of 1,444.2 won but has been fluctuating around 1,440 won in the early trading hours.

The exchange rate showed renewed instability due to the yuan's sharp decline following Chinese President Xi Jinping’s third-term leadership appointments, which were filled exclusively with loyalists. Since the won tends to follow the yuan, it is likely to continue its upward trend for the time being. Additionally, the domestic short-term financial market is tightening due to the aftershocks of the Legoland incident, and the yen, which has again approached 150 yen per dollar, is also contributing to the won's weakness.

Expectations for the peak of inflation are also fading. According to the Bank of Korea’s October Consumer Sentiment Survey released on the same day, the expected inflation rate rose by 0.1 percentage points to 4.3% from 4.2% last month. The expected inflation rate, which had risen to 4.7% in July?the highest level since statistics began in 2008?had fallen for two consecutive months in August and September due to the decline in international oil prices but rebounded this month. Expected inflation is a burden as it influences wage and price setting, thereby increasing inflationary pressure.

To make matters worse, the domestic manufacturing inventory ratio has exceeded 120% for three consecutive months. Except for May 2020, right after the outbreak of COVID-19, this is the first time in the past three months that the inventory ratio has soared to the 120% range since September 1998 (122.9%). Kim Jeong-sik, Professor Emeritus at Yonsei University, diagnosed, "Although the government has introduced market stabilization measures as the corporate bond market freezes, the situation remains precarious. With financial tightening causing fluctuations in inflation and the foreign exchange market, the Korean economy is caught in a storm of a complex crisis."

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