Bank of Korea flags won volatility as AI chip exports lift South Korea outlook

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Bank of Korea flags won volatility

Highlights

The won gains about 13% against the U.S. dollar in Q3, its sharpest quarterly rise since Q4 1998, driven by AI-related chip exports.
The Bank of Korea keeps its benchmark interest rate at 3.00% in September, citing inflation risks tied to energy prices and ongoing export strength.
This year's current-account surplus may be revised up to nearly $500 billion from the August forecast of $450 billion, reflecting stronger-than-expected export performance.

Currency moves and policy trade-offs

As reported by Reuters, Bank of Korea board member Hwang Kunil says the recent pace of the won's moves is faster than expected, adding that policymakers are watching volatility more closely than the exchange rate level itself. He also says downward pressure on the exchange rate remains valid once South Korea's large current account surplus and foreign investment rebalancing are taken into account.

Hwang links the won's recent gains to rising dollar inflows from the global artificial intelligence buildout, which is driving demand for specialised memory chips produced by SK Hynix and Samsung Electronics. The won gains about 13% against the U.S. dollar in the third quarter, marking its sharpest quarterly rise since the fourth quarter of 1998.

The Bank of Korea keeps its benchmark interest rate unchanged at 3.00% this month after back-to-back increases in July and August, while leaving open the possibility of further tightening because of inflation risks tied to energy prices and a resilient recovery. Hwang, regarded by analysts as one of the more dovish members of the seven-member board, opposed the quarter-point rate increase in August.

Export strength and uneven domestic impact

Hwang says exports remain the backbone of South Korea's economic structure, even if their role is not as dominant as in the past. He expects headline consumer price inflation to move toward the central bank's 2.0% target near the end of the first half of 2027 and to stabilise fully at that level by the end of next year or early 2028.

At the same time, he says the benefits of the export surge are not spreading evenly across the economy. Private consumption is recovering more slowly, while small and medium-sized businesses continue to face elevated delinquency rates and weak domestic demand.

Hwang also raises concern about the quality of financing among smaller companies, saying much of their borrowing is being used for immediate operating costs such as wages and raw materials rather than capital investment. On external risks, he says a slowdown in global AI spending would hurt if it reduced the current-account surplus by about $50 billion, though he adds that the boom is likely to last somewhat longer.

He also says this year's current-account surplus could be revised up to nearly $500 billion from the Bank of Korea's August forecast of $450 billion.

In our earlier article on the Nasdaq 100’s volatility amid AI supply-chain concerns and higher financing costs, we noted that the index rebounded but remained capped below key moving averages, keeping short- and medium-term pressure in focus. The analysis highlighted weakness in semiconductor and AI-linked shares as a key driver of the swings and pointed to specific technical levels traders were watching for a more durable recovery.

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