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South Korea’s central bank warned on Wednesday that downward pressure on the won currency might resume, and pledged to increase risk monitoring and market stabilisation if needed.
“It is difficult to completely rule out the possibility of downward pressure strengthening again for the won,” the Bank of Korea said in its biannual financial stability report.
Among the primary risk factors mentioned by the bank for the currency were a shift in expectations for US interest rate decreases, geopolitical unrest in the Middle East, and weakening in the Japanese yen and Chinese yuan.
South Korea’s and Japan’s finance ministers voiced alarm over steep losses in their currencies this week, vowing to protect them as they approached crucial psychological levels of 1,400 and 160 versus the dollar, respectively.
The won’s recent fall was more pronounced than the gain in the US dollar, and most investment banks still anticipate the won to stabilize before the end of the year, according to the BOK.
Domestically, the Korean central bank identified real estate project financing as a significant risk issue for the country’s financial system.
Real estate-related risks are unlikely to become systemic difficulties, according to the report, but default risks for real estate projects have grown due to a slowing property market and increasing input prices, with non-bank financial sector delinquency rates growing rapidly.
The bank said that it will improve monitoring of external and internal risk variables to guarantee effective policy response.
It also said that it will work closely with other authorities to address unforeseen market instability issues by implementing stabilizing actions in a timely manner.
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