Seoul is tracking one-sided won moves, will issue stern response if needed

[NEW YORK/ SEOUL] South Korea’s finance minister said that the authorities are monitoring any speculative, one-sided currency moves, underscoring the country’s readiness to act as the won trades near a seven-month low.

Back from the G20 summit in South Africa, finance minister Koo Yun Cheol said on Wednesday (Nov 26) that officials will “sternly respond if foreign-exchange volatility excessively widens”, without elaborating on the measures.

The government has begun talks with key market players, including the state-owned National Pension Service (NPS), to establish a “new framework” for foreign exchange stability, he said in a briefing in Seoul.

The pressure to intervene more actively is intensifying as stock outflows and rising US investment by locals sent the won tumbling almost 4 per cent this quarter, making it the biggest loser in Asia after the yen.

In the week of Nov 24, the won fell to the lowest since April, with Citigroup strategists saying that the currency is nearing a threshold that could trigger US dollar sales by the NPS.

The won strengthened as much as 0.8 per cent against the dollar ahead of the minister’s comments, touching the 1,457 level. But it pared those gains after the briefing and traded up only about 0.1 per cent in the afternoon.

Today’s briefing “fell short of market expectations for concrete foreign-exchange stabilisation measures involving the NPS”, said Wee Jaehyeon, an economist at NH Futures.

“The won is retracing after briefly dipping below 1,460 per dollar earlier in the session,” he added.

The minister’s comments came a day before the central bank meets to set monetary policy, with markets widely expecting the Bank of Korea (BOK) to keep its benchmark rate unchanged at 2.5 per cent.

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The weaker won has been one of the factors keeping the BOK on the sidelines for the past four meetings.

A stable foreign exchange environment has a significant influence on the pension fund’s returns, and the new framework is not about mobilising the fund to defend the won, but about establishing a long-term, fundamental alternative, Koo said, without elaborating.

Earlier in November, the government pledged to “use all available tools” to support the won in coordination with the pension fund.

The authorities later discussed measures to balance the pension fund’s investment returns with foreign-exchange market stability, and held separate talks with stock brokerages.

Koo said he expects cooperation from exporters, though no short-term incentives are under review.

Kim Jae Hwan, director-general of the International Finance Bureau, also said that the government will monitor foreign exchange volatility and take bold market-stabilisation measures if needed, echoing the minister’s comments.

The NPS, Korea’s largest institutional investor with about US$530 billion of foreign assets, has often helped counter the pressure on the won through hedging and foreign exchange operations.

It sold dollars and bought the won from January to May this year. BLOOMBERG