South Korea’s central bank governor, Rhee Chang Yong, insisted that the country’s economy remains strong despite the won’s recent dip. He also argued that he would push back against any US investments that could destabilize the foreign-exchange market.
The won, which is trading near multi-year lows, has become a focal point in broader economic ties with Washington, including tariff negotiations and investment commitments.
Rhee noted, “While it is difficult to identify a precise appropriate exchange rate level, the recent rise into the upper 1,400s appears to be substantially misaligned with our economic fundamentals.” Rhee underscored that the central bank and government will not endorse US-bound investments that risk exacerbating volatility in the FX market.
He added that the Bank of Korea, in unison with the government, will not support any decisions that could compromise foreign-exchange market stability in the process.
Rhee says inflation will be relatively steady in 2026
South Korea just introduced new currency-support measures last week, after the won approached the 1,500-per-dollar mark — a level last seen during the 1997 Asian financial crisis and the global financial crisis. The won had declined after foreign capital outflows, and concerns that additional US investment linked with trade talks could add pressure on the exchange rate had grown.
In his New Year’s address on Friday, the BoK governor asserted that the $20 billion outlined in the US trade agreement represents the upper annual limit, adding that investment decisions would not be taken if they threatened FX market stability. He explained that the decline in the exchange rate is due to the difference in interest rate gaps between the nation and the US, as well as the Korean discount. He also argued that resident foreign investment created short-term FX supply-demand pressures.
Nonetheless, he said inflation is expected to remain steady in the year ahead. However, he warned that additional exchange-rate weakness could threaten that outlook. The central bank maintained borrowing costs at 2.5% in late November and revised its growth and inflation projections upward. Most analysts believe the bank will keep rates unchanged at the Jan. 15 policy meeting.
Nevertheless, the bank asserted that it’s still open to cut rates further next year, even as it ramps up oversight of risks stemming from won weakness and climbing housing prices. Any move toward additional easing will hinge on a holistic assessment of price pressures, economic momentum, and financial stability risks, the bank said in its 2026 policy statement.
However, a Bloomberg poll in December found that economists expected the next rate cut would not happen until the last quarter of 2026. Some analysts also believe the BOK has already completed its rate-cutting phase.
Global investors are urging Korea to increase its stock allocation
Global investment banks are encouraging South Korea to increase its US stock allocation, anticipating a surge in AI in 2026. They emphasized that the US stock markets are expected to continue climbing next year. UBS Global Wealth Management even stated in its 2026 outlook report that spending on capital across data centers, power, and semiconductors will drive further gains in AI-related shares. It also forecast the S&P 500 to hit 7,700 in its base case and potentially reach as high as 8,400 if markets perform well.
JPMorgan also projected the US market could post 13%–15% annual growth over the next two years. Additionally, Morgan Stanley expects a 14% rise in the S&P 500 next year, which would take it above 7,800, ahead of Japan and Europe.
Moreover, Goldman Sachs also denounced claims that AI is overheating, arguing that investment is still in its “early stages” and will continue to grow as hyperscalers and nations compete for AI dominance.
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Source: https://www.cryptopolitan.com/korea-signals-strong-defense-of-the-won/
