(LEAD) Korean won hits over 13-year low amid aggressive monetary tightening woes

All News 11:30 August 22, 2022

(ATTN: RECASTS headline; UPDATES with more details throughout)

SEOUL, Aug. 22 (Yonhap) -- The South Korean currency on Monday fell to the 1,330 won level against the U.S. dollar for the first time in more than 13 years amid prospects that the Federal Reserve will maintain its aggressive rate hike policy.

The won was trading at 1,337.80 against the dollar as of 11:06 a.m., down 11.90 won from the previous session. The won hit as low as 1,338.50 won per dollar after the market opened.

It marked the first time that the won has slid to the 1,330 level against the greenback since April 29, 2009.

This photo, taken Aug. 22, 2022, depicts currency movements on a monitor at a Hana Bank dealing room in Seoul. The South Korean currency slid through the 1,330 won level against the U.S. dollar for the first time in more than 13 years. (Yonhap)

The won's weakness came as the minutes of the Fed's July policy meeting released last week showed the U.S. central bank is likely to continue its aggressive monetary tightening to put a lid on inflation.

Since the local currency fell to the 1,300 level for the first time in nearly 13 years on June 23, the won's weakness has been accelerated as the Fed's policy stance boosted demand for the greenback. The won has declined more than 11 percent against the dollar so far this year.

Last month, the Fed raised its key interest rate by 75 basis points for the second straight month.

Seoul's main stock index lost ground on Monday amid worries about the Fed's tight policy stance.

The KOSPI had fallen 20.18 points or 0.81 percent to 2,472.51 as of 11:06 a.m.

But foreign investors helped prevent further losses, purchasing a net 33.6 billion won (US$25 million) worth of shares.

A stronger dollar has spawned concerns about capital outflows from the South Korean market as investors tend to chase higher returns.

Capital flights are feared to further weaken the Korean currency against the dollar, putting upward pressure on inflation.

The Bank of Korea (BOK) is scheduled to hold its rate-setting meeting Thursday, with experts forecasting a 0.25 percentage rate hike. Last month, the BOK delivered an unprecedented 0.5 percentage-point rate increase to curb inflation, marking the sixth rate increase since August last year.

A rate hike is meant to curb inflation, but it could increase debt-servicing burdens and slow down economic growth.

A widened trade deficit is also a cause for concerns among policymakers. A weaker won helps boost exports, but the country's outbound shipments slowed down amid the global economic downturn.

South Korea posted a trade deficit of $10.2 billion during the first 20 days of August, customs data showed. If the current trend continues, the nation is likely to log a trade deficit for the fifth straight month in August due to high energy costs.

South Korean policymakers, however, dismissed concerns about capital outflows, saying that the won's fall does not appear excessive, compared with other major currencies, including the yen and the euro.