Korean currency to rise to 1,010 won in 12 months: Goldman Sachs

By Lee Minji
SEOUL, July 19 (Yonhap) -- The South Korean currency is expected to appreciate to 1,010 won against the U.S. dollar in 12 months due to the combination of a strong trade balance and policy factors, Goldman Sachs Group Inc. said Tuesday.
The South Korean won has gained 6.4 percent against the dollar this year, becoming one of the best-performing currencies in Asia. The local currency was changing hands at 1,059.90 won to the greenback as of 11:20 a.m., up 1 won from Monday's close.
"We see room for further appreciation on a positive balance of payment outlook, strong inflation pressure in the near term, and the policy backdrop in Korea as reflected in recent official macro forecasts," Kwon Goo-hoon, an economist at Goldman Sachs, said in a report.
The U.S. investment banking giant upgraded its three-month, six-month and 12-month outlooks for the Korean won to 1,040 won, 1,030 won and 1,010 won from its previous forecasts of 1,060 won, 1,050 won and 1,040 won.
The revision comes amid projections the country's trade balance will remain strong over the next few months. South Korean exports are expected to stay robust in the second half of the year on prospects of Japan's recovery, a moderate acceleration in U.S. economic growth as well as a competitive Korean won, according to Goldman Sachs.
The Bank of Korea recently raised its current account forecast for 2011 to US$15.5 billion from $11 billion. A positive current account translates to a stronger local currency, as more exporters try to exchange the greenback to the Korean won.
In addition, Goldman Sachs said the government's renewed focus on inflation and jobs may push the government to resort to currency policies rather than interest rate hikes to achieve its goals.
"Given the high capital intensity of the Korean export sector, the dual objectives of price stability and job creation could be achieved more easily through Korean won appreciation than interest rate hikes," Goldman Sachs said.
Goldman Sachs, meanwhile, retained its growth forecast for South Korea at 4.3 percent for 2011 and 4.4 percent for 2012.
mil@yna.co.kr