"KRW 1,400 in a month or two"…FX authorities fall silent after president’s pledge

Unusual mention of a specific FX level

Mixed takes: "gaffe" vs. "extraordinary measures"

Likely to step in with FX reserves

Speculation also of shake-up in MoFE’s international finance line

After President Lee Jae-myung said at a New Year’s press conference on the 21st that “according to the responsible authorities, the won-dollar exchange rate will fall to around KRW 1,400 in about a month or two,” senior FX officials have uniformly fallen silent, saying they “decided not to offer any further explanation.” This stands in contrast to the presidential office’s swift pushback—“we are not pursuing or reviewing a supplementary budget”—after Lee mentioned the need for an extra budget on the 15th and 20th.

With FX authorities staying quiet, the market is offering divergent interpretations of why the president pinpointed “around KRW 1,400 within a month or two.” FX authorities typically refrain from commenting on specific exchange-rate levels. Some see Lee’s remarks as reflecting confidence—based on information that extraordinary measures to rein in the exchange rate are imminent—while others speculate he mistakenly referred to forecasts from global investment banks (IBs) as coming from “the responsible authorities.”

Either way, by publicly committing to a specific level and timeframe, the FX authorities now face pressure to make the remark a reality. That is why expectations are rising for a series of forceful verbal intervention and actual intervention. There is also speculation that at next week’s meeting of the National Pension Fund’s Fund Management Committee, measures related to overseas investment that could affect the FX market may be announced.

FX authorities say that once the return-to-domestic-market account (RIA) is launched next month and the National Pension Service’s “new framework” for overseas investment is finalized in the first quarter, it would not be impossible to pull the exchange rate down to the level the president cited.

The market remains unconvinced. An FX dealer at a commercial bank said, “Even though the market is awash with dollars, the exchange rate keeps rising, which suggests the FX authorities have run out of cards and that there is strong real demand from those buying dollars to invest in U.S. stocks,” adding, “To push the exchange rate down by KRW 80 in just a month or two, they have no choice but to actively intervene in the market using FX reserves.” FX authorities are also said to be adjusting the scale of intervention with the level of reserves in mind.

Meanwhile, speculation is spreading that the international finance line at the Ministry of Finance and Economy (MoFE), which oversees the exchange rate, could be replaced. Kim Yong-beom, the presidential chief policy secretary, is said to have repeatedly reprimanded the international finance line, saying it has fallen into “dogma,” as the exchange rate has proven hard to rein in. The grievance is that FX market supply and demand has structurally changed as overseas investment by so-called “Seohak ants” and the National Pension Service has increased, yet FX authorities have failed to break from traditional response methods.

A sweeping reshuffle of the international finance line—known for stronger in-group hiring than other departments—is also said to be under review. One option reportedly being considered is swapping likely candidates for the director general of economic policy and the director general of international finance. Still, some argue that changing commanders in the middle of a “war” against market expectations that the exchange rate will keep rising could further unsettle the FX market.

By Kim Hyung-gyu / Jung Young-hyo / Kang Jin-gyu, khk@hankyung.com