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The South Korean won has had an impressive last three months climbing 4.4% against the US dollar causing expectations for inflation rates to decrease amidst the appreciating currency.
The Korean currency reached a high near the end of May just last week, when it gained against the dollar to a level not seen in nearly six years. On that day on May 30, it achieved a worth of 1017.15 as part of a five day rally that had the currency rise at each close.
Its rally saw an end, however, on Monday morning when figures on South Korean exports were released. These revealed a surprising drop of 0.9% in exports in May, a first since January, compared to the same period last year, running counter to the expected 3.4% growth of a news survey. The won was down 0.3% to the dollar at 1,023.80 as of 10:32am Seoul local time possibly marking its first drop in six days.
Nevertheless, the strong performance of the won over the past several months has induced lower foreseen inflation rates for the rest of the year. Estimates from two separate organizations in the Korea Development Institute (KDI) and the Australia & New Zealand Bank Group Ltd. (ANZ) revealed slashed rates reflecting the won’s 2nd best showing among Asia’s major currencies in the quarter. KDI brought down its estimate from 2.6% to 1.9% while ANZ had theirs to 1.6% from 2%, both below the Bank of Korea’s rating of 2.1%
Reasons cited for the decrease were cheaper imports made possible by the currency’s appreciation and a reduced spending pattern in the wake of the April 16 ferry sinking that took at least 288 lives. As a response, the Korean government and the central bank are expected to enact measures to raise up consumer spending.
For the first half of the year, the country’s central bank foresees the average inflation to fall to 1.5% before surging to 2.7% during the last six months. Prices of consumer commodities climbed 1.6% in May when compared to a year ago.
In an announcement made in April 10, the Bank of Korea recently expressed optimism in the Korean economy’s growth, increasing their forecast by from 3.8% to 4%.The nation continues to have a trade surplus worth $5.35 billion, continuing a 28 month streak.
