Posted on 10/10/2007 1:22:39 AM PDT by bruinbirdman
The South Korean won’s appreciation to 10-year highs against the US dollar has prompted further calls for the government to cap the currency’s strength and help protect exports.
The Samsung Economic Research Institute recently warned that “the won’s value against major currencies has reached a point where Korean firms can’t compete with global rivals” and that a further rise “will put them in serious trouble”.
The won has climbed more than 4 per cent in just six weeks, since touching a 2007 low of 952.2 to the dollar in August. The won closed trading at 918.50 to the dollar in Seoul on Tuesday.
According to a survey by the Bank of Korea, the profitability of Korean companies worsened in the second quarter, with he ratio of operating profits to sales falling 0.4 of a percentage point to 6.5 per cent in the second quarter.
Some economists say that while exports remain surprisingly resilient thanks to strong demand from China and other emerging markets, the stronger won will eventually dent overseas sales, especially to the US.
To curb the won’s appreciation, the government has eased regulations on overseas investment by South Koreans and put restrictions on short term foreign-currency loans by international banks in Korea.
But experts expect the won’s appreciation to continue, driven by South Korea's strong economic fundamentals and its interest rate gap with the US.
The Bank of Korea has raised interest rates to a six-year high of 5 per cent, adding upward pressure on the won, although it is widely expected to hold rates steady for the rest of this year.
I won do that!
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