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South Korea cbank's lower 2016 FX forward positions hint at less intervention

Wednesday, February 22, 2017 - 13:49

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South Korea's central bank held the smallest amount of foreign exchange currency forward positions last year since end-2012, data from the International Monetary Fund showed, in a sign the bank may have intervened less to weaken the won for trade competitiveness.

[SEOUL] Feb 22 (Reuters) - South Korea's central bank held the smallest amount of foreign exchange currency forward positions last year since end-2012, data from the International Monetary Fund showed, in a sign the bank may have intervened less to weaken the won for trade competitiveness.

According to the IMF data, South Korea's long positions in forwards in foreign currencies in regard to the won stood at US$39.71 billion at the end of 2016.

This was the smallest since end-2012 and down US$11.89 billion from US$51.68 billion seen at end-2015.

Last year, the won fell 3 per cent against the surging dollar, its third straight year of depreciation versus the greenback.

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But so far this year it has gained nearly 6 per cent, as emerging market currencies get a boost from a pause in the dollar.

The data is usually used by analysts and traders to try and calculate how much the Bank of Korea intervenes in the foreign exchange market.

Foreign exchange reserves, which can also be a gauge of intervention, rose US$3.14 billion in 2016 to a record US$371.10 billion, after a US$4.37 billion rise in 2015.

The central bank does not disclose details or confirm traders' suspicions of intervention.

But South Korean foreign exchange authorities say they conduct market smoothing activities against extreme one-sidedness or herd behaviour in the market.

The data, updated monthly, also showed the forwards positions declined considerably over the course of November and December, coinciding with the election of US President Donald Trump and his taking office.

The Bank of Korea declined to comment on the data or whether it had intervened, while a foreign exchange official said it was"too hasty" to give meaning to recent movement in the positions.

South Korean officials, including the finance minister, have been vehement that the country will not be named as a currency manipulator in the US Treasury's report on foreign exchange policies of major trading partners expected in April. REUTERS

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