S. Korean won unlikely to breach 1,000 mark this year: economist

By Kim Soo-yeon

SEOUL, Jan. 20 (Yonhap) -- The Korean currency is expected to ascend against the U.S. dollar this year on robust exports and foreign capital inflows, but it is not likely to breach the 1,000 won level within a year's time, an economist at Credit Suisse says.

"The balance of the payment in Korea still should stay positive... And Korean
assets still remain relatively fair valued to undervalued. In the short and
medium term, this suggests that capital flows should stay positive," Joseph Lau,
vice president at the Swiss bank's emerging Asia economics research team, said in
an interview with Yonhap News Agency.
The Korean won was one of the world's worst performing currencies in 2008 as the
global credit crunch and subsequent economic downturn sparked by the collapse of
Lehman Brothers prompted offshore investors to flock to safer assets. It tumbled
25.7 percent to the dollar in 2008 alone.
But as global financial markets have begun to stabilize and the Korean economy is
picking up, the local currency has appreciated swiftly with its value rising 8.16
percent in 2009. The Korean unit rose to a near 16-month high of 1,119.80 on Jan.
11 of this year.
The current account is forecast to remain in the black in 2010 although the
surplus will likely shrink to around $17 billion this year, according to the Bank
of Korea (BOK), South Korea's central bank.
Lau said the outlook for the U.S. dollar remains "vague for the foreseeable
future," adding that the dollar's weakness is likely to continue at least over
the medium term or until the U.S. economy starts to pick up.
But despite a set of factors that suggest a further appreciation of the won, he
dismissed the possibility of the Korean unit breaching the 1,000 won level
against the greenback this year.
"In my view, it might be over three or five years," said Lau.
He said the degree of the won's appreciation would be limited by the central
bank's likely intervention to stem the won's gain, adding that whether it hits
the 1,000 won mark against the dollar also depends on how quickly countries begin
to tighten their monetary policies.
Lau noted that the Korean economy, Asia's fourth-largest, is widely expected to
grow "higher than" 5 percent this year with upside risks outweighing downside
ones.
His remarks came as the South Korean economy chalked up a surprise 3.2 percent in
the third quarter from three months earlier on improving domestic demand and
brisk exports. The government predicted in December that the economy would expand
5 percent this year after an estimated 0.2 percent growth in 2009.
The government remains cautious, however, saying it will maintain an
"expansionary" policy for the time being as the economic recovery has yet to gain
a solid footing.
Lau predicted that after an estimated 6 percent gain in the first half, growth
momentum will likely slow to around 2 percent in the July-December period as the
impact of the government's stimulus packages begins to fade.
A sustained and longer-term recovery in the export-driven Korean economy will
likely depend on how fast the economies of the United States, Japan and the
European Union regain stability.
"When G-3 situations stabilize, then I think we can be talking more about a
sustained and longer-term recovery," Lau said.
The economist said the BOK is likely to raise its key interest rate in the second
quarter as economic data become more convincing. He forecast that the central
bank will hike the base rate by up to 150 basis points this year.
The BOK froze the key rate at a record low of 2 percent for the 11th straight
month in January after cutting a total of 3.25 percentage points between October
2008 and February.
sooyeon@yna.co.kr