Korean Won Value, Lowest Among Major Countries… Weakest After Ruble

Korean Won Value Plunges 5.3% in a Month

Next to War-Torn Russian Ruble

Exchange Rate Shock, Direct and Indirect Impact on Prices

Bank of Korea: "Exchange Rate Raises Prices by 0.1% Point"

In December last year, the value of the Korean Won fell by more than 5%, showing the weakest performance among major currencies after war-torn Russia.

According to data submitted by Lim Kwang-hyun, a member of the Democratic Party of Korea, from the Bank of Korea, the won-dollar exchange rate rose from 1,394.70 won at the end of November last year to 1,472.50 won at the end of December. The rise in the exchange rate means that the value of the Korean Won has fallen. The value of the Korean Won against the US Dollar fell by 5.3%.

Excluding the Russian Ruble, which had a depreciation rate of 6.4% during the same period, this was the largest decline among the major 20 countries. The major six currencies that make up the Dollar Index, including the △European Union Euro 2.1% △Japanese Yen 4.7% △British Pound 1.7% △Canadian Dollar 2.6% △Swedish Krona 1.6% △Swiss Franc 2.9%, all had lower depreciation rates than the Korean Won.

Even throughout last year, the depreciation rate of the Korean Won against the US Dollar was higher compared to major countries. The value of the Korean Won fell by 12.5% over the entire year. Only five currencies had higher depreciation rates than the Korean Won: the Argentine Peso (21.6%), Brazilian Real (21.4%), Ruble (21.3%), Mexican Peso (18.5%), and Turkish Lira (-16.5%). The depreciation rates of major currencies such as the Euro (6.2%), Yen (10.3%), Pound (1.7%), and Yuan (2.6%) were lower than that of Korea.

The Bank of Korea recently analyzed that the sharp rise in exchange rates due to political instability is having a direct and indirect impact on consumer prices. In response to a query from Lim about the impact of recent exchange rate volatility on prices, the Bank of Korea replied, "Considering the model estimation results, the rise in exchange rates since mid-November last year is estimated to have raised the December Consumer Price Index (CPI) growth rate by about 0.05 to 0.1 percentage points."

The consumer price inflation rate in December last year was 1.9% compared to the same month the previous year, up 0.4 percentage points from the previous month (1.5%). This is the first time the Bank of Korea has specifically mentioned the impact of exchange rate rises on prices with concrete figures before and after the state of emergency.

Hwang Jung-hwan, Reporter jung@hankyung.com