ROK needs smoothing operation for stable currency

SEOUL - South Korean authorities need to conduct smoothing operating to prevent the local currency from appreciating sharply against the US dollar, a local think tank said Wednesday.

According to the report by Hyundai Research Institute (HRI), the recent ascent of the South Korean won versus the greenback was expected to continue on relatively solid economic fundamentals, resulting in worsening profitability of local exporters.

The think tank urged the authorities to intervene in the foreign exchange market in order to block the potentially abrupt change in the won-dollar movement, saying that the smoothing operation by the authorities would ease market nervousness over the possibly sharp appreciation of the won to the dollar.

The South Korean currency depreciated to 1,186 won against the dollar in late May amid concerns over European debt problems, but it appreciated around 7 percent to close at 1,103.6 won on Wednesday.

The recent appreciation was attributable to persistent current account surplus and an increase in foreign fund inflow into the country following a series of sovereign credit rating upgrades by major global rating agencies.

South Korea logged a current account surplus of $2.36 billion in August, keeping its surplus trend for seven straight months. For the first eight months of this year, the surplus amounted to $22.3 billion.

Global rating appraisers Moody's, Fitch and Standard & Poor's all revised up the country's sovereign rating recently, boosting foreign fund inflow into the nation.

The think tank forecast that the won-dollar exchange rate will highly likely fall below the 1,100 won level due to the above- mentioned factors such as the current account surplus trend and foreign fund inflow, saying that the falling speed may accelerate further if the rate falls below the psychologically import level of 1,100 won.

The accelerating ascent of the local currency will hamper profitability of local exporters as the exporting firms usually failed to pass through the currency appreciation to the dollar- denominated product prices for the purpose of maintaining price competitiveness, the think tank said.

According to the report, local chipmakers raised the export price of their products by 6.6 percent when the South Korean won appreciated 10 percent against the greenback. Under the 10 percent ascent of the won versus the dollar, local automakers and handset manufacturers lifted their export prices just by 2.1 percent.