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24 Jun 2013
Flash: Policymakers appear to welcome a weaker KRW - Nomura
FXstreet.com (Barcelona) - Nomura economist Young Sun Kwon believes that a weaker KRW should support Korea's export-driven economy, and he expects policymakers to maintain an undervalued KRW, which may also reduce deflation risks.
He begins by noting that global concerns over the FOMC´s QE tapering have driven EM currencies (including KRW) weaker against USD. He sees that although Korean policymakers are concerned with increased market volatility, they actually appear to welcome the weaker KRW, as it should support Korea‟s export-driven economy, as it did following the Lehman crisis in 2008. For example, he notes that if KRW/USD remains at 1157 (which it reached this morning) throughout H2 2013, he estimates Korea‟s exports (in KRW terms) would rise by 3.5 percentage points on year-over-year basis.
Previously he has argued that higher KRW volatility is not always bad, because, if the recession worsens on a global scale or if internal commodity prices collapse, KRW has room to depreciate enough to offset deflation risks. He finishes by writing, “We believe Korea‟s macro policy will be steadfastly focused on keeping the current account in a sizable surplus.”
He begins by noting that global concerns over the FOMC´s QE tapering have driven EM currencies (including KRW) weaker against USD. He sees that although Korean policymakers are concerned with increased market volatility, they actually appear to welcome the weaker KRW, as it should support Korea‟s export-driven economy, as it did following the Lehman crisis in 2008. For example, he notes that if KRW/USD remains at 1157 (which it reached this morning) throughout H2 2013, he estimates Korea‟s exports (in KRW terms) would rise by 3.5 percentage points on year-over-year basis.
Previously he has argued that higher KRW volatility is not always bad, because, if the recession worsens on a global scale or if internal commodity prices collapse, KRW has room to depreciate enough to offset deflation risks. He finishes by writing, “We believe Korea‟s macro policy will be steadfastly focused on keeping the current account in a sizable surplus.”