(Recasts throughout with more details)
By Choonsik Yoo
SEOUL, April 18 South Korea came under fresh
pressure on Friday to let the won rise faster, when the
International Monetary Fund said it was carrying an abnormally
big current account surplus and that more dollar purchases would
do more harm than good.
The IMF said in a report based on its late 2013 annual
policy review that the won was estimated to be as much as
8 percent undervalued, while saying South Korea appeared to have
been intervening actively to resist the currency's appreciation.
The U.S. Treasury Department also called on South Korea in a
scheduled report early this week to limit foreign exchange
intervention to exceptional circumstances and not use regulatory
measures to curb appreciation pressures.
"Staff, therefore, continue to assess that the exchange rate
remains moderately undervalued in the range of 2-8 percent, with
the upper end of the range seeming more plausible in light of
the recent widening of the current account surplus," the IMF
The won has gained 1.8 percent against the dollar
so far this year and was trading close to a near six-year high
set last week.
The IMF said South Korea's current account surplus was
estimated to be around 3-4 percent more than the norm. South
Korea's current account surplus shot up to 6.1 percent of annual
gross domestic product in 2013 from 4.2 percent in 2012.
"Over the medium term, greater exchange rate appreciation
would encourage reallocation of resources to the non-tradables
sector, thereby further supporting rebalancing," the IMF said,
adding further dollar-buying intervention is also costly.
South Korea's economy, the fourth-largest in Asia, relies
heavily on exports for growth and the country has repeatedly
denied it was intervening in the currency market with the aim of
keeping the won cheaper than the fair value.
"(South Korean authorities) disagreed with staff's
assessment that the won is moderately undervalued, noting its
appreciation since 2012," the IMF also said in the report. "They
stressed that smoothing operations are restricted to alleviating
excessive exchange rate volatility in the face of market
The report was published based on the IMF's annual policy
consultations with South Korea held in late 2013 and on a staff
report prepared early this year, it said.
It added inflation in South Korea was expected to return to
the country's target, which is set by the central bank at
between 2.5 percent and 3.5 percent. Inflation has stayed below
the lower end of the target for months.
(Editing by Jacqueline Wong)