South Korean Won Hits 17-Year Low Amid Economic Concerns
SEOUL, March 16 (Yonhap) — The South Korean won has plunged to a 17-year low, raising alarm over potential inflation and broader economic repercussions. On Monday, the currency opened at 1,501 won per dollar, marking a decline of 7.3 won from the previous session. This significant drop breached the critical psychological barrier of 1,500 won for the first time since March 12, 2009, during the global financial crisis. By midday, the won managed to recover slightly, trading at 1,497.5 won per dollar, but it remains the weakest it has been in nearly two decades.
Analysts attribute the won’s depreciation to escalating tensions in the Middle East, which have driven global oil prices higher. Since the beginning of March, the won has depreciated by 3.84 percent against the U.S. dollar, a sharper decline compared to other major Asian currencies like the Japanese yen and Chinese yuan, which fell by 2.39 percent and 0.79 percent, respectively. The ongoing crisis has led to increased demand for safe-haven assets, further strengthening the dollar.
Impact of Rising Oil Prices on South Korea’s Economy
The surge in global oil prices has significant implications for South Korea, which relies heavily on imports for its energy needs. Approximately 98 percent of the country’s fossil fuels are imported, with around 70 percent of crude oil sourced from the Middle East. Brent Crude, the global benchmark, recently soared to over $106 per barrel, primarily due to supply disruptions in the Strait of Hormuz, a vital shipping route for oil and gas.
Economists warn that higher oil prices could exacerbate inflationary pressures in South Korea. Park Hyung-joong, an economist at Woori Bank, noted that a 10 percent annual increase in global oil prices could elevate consumer inflation by up to 0.2 percentage points. The Bank of Korea (BOK) forecasts a 2 percent growth in the economy for 2026, alongside a projected inflation rate of 2.1 percent, assuming Brent crude averages around $64 per barrel this year.
The weaker won not only raises costs for companies reliant on imported energy and raw materials but also threatens to dampen economic growth. Lee Min-hyuk, an economist at KB Kookmin Bank, highlighted that rising oil prices could shrink the current account surplus and exert additional downward pressure on the won. Furthermore, steep inflation may weaken consumer sentiment, raising concerns about the potential for stagflation, where high inflation coincides with stagnant economic growth.
Government Response to Currency Decline and Inflation
In response to the currency’s decline and rising inflation, the South Korean government is taking steps to stabilize the foreign exchange market. Finance Minister Koo Yun-cheol and Japanese counterpart Satsuki Katayama recently expressed serious concerns over the sharp decline of currencies in a joint statement. They agreed to coordinate efforts to mitigate market volatility, with Koo hinting at possible verbal interventions to curb the won’s slide if necessary.
The BOK has assured that dollar liquidity remains sufficient and that it is prepared to implement stabilization measures as needed. Additionally, the government plans to submit a supplementary budget bill to the National Assembly by the end of March to address the economic fallout from the ongoing crisis. To combat rising fuel prices, a temporary price cap on fuel supplied by refiners to gas stations was introduced last week.
