The Reserve Bank has been responding to the rising exchange rate through two avenues: in maintaining the Official Cash Rate (OCR) at an historically low level; and through a degree of currency intervention. The high exchange rate is reflected in the current low level of the OCR.
3 This coincided with an expansion of private sector credit and a steep run-up in housing prices. In response, beginning in the first half of 2006, the Korean government introduced policies to promote capital outflows, making it much easier for Korean residents to invest abroad. Thanks to these policies, residents’ overseas portfolio and direct investment soared, offsetting the foreign capital inflows.