IMF says Korean currency should be further appreciated

By 정주원
  • Published : Apr 18, 2014 - 15:41
  • Updated : Apr 18, 2014 - 15:41
The South Korean currency is undervalued in the range of 2 percent to 8 percent, the

International Monetary Fund said in its latest report, encouraging further appreciation of the won over the medium term.

The IMF report dated Thursday said the won remained moderately undervalued by as much as 8 percent, with the upper end of the range seeming more plausible given the current account surplus run.

"Staff analysis, based on estimates of the rise in reserves unexplained by interest income and spikes in the FX forward positions around periods of appreciation, suggests that intervention has tended to be more active in the face of appreciation," it said.

The report said the won should continue to be market determined and that intervention should be limited to smoothing excessive volatility.

"Over the medium term, greater exchange rate appreciation would encourage reallocation of resources to the non-tradables sector, thereby further supporting rebalancing," the report said.

Earlier this week, the U.S. Treasury Department said that South Korea should limit FX market intervention to the exceptional circumstances of disorderly market conditions, calling for better transparency of market intervention.

The IMF also said that as it sees Korea's foreign exchange reserves to be ample, there is no need for South Korea to accumulate it further.

The Korean won appreciated 1.4 percent against the U.S. dollar in 2013 amid the surplus run of the current account. The won has risen around 1.6 percent per the greenback so far this year.

Korea's FX reserves totaled a record $354.34 billion as of end-March, and its current account surplus hit a record high of $79.88 billion last year. (Yonhap)