Seoul: South Korea dumped up to $1 billion worth of won, dealers estimated, and warned of other action on Thursday in the strongest moves in months to halt a rally in the local currency that is adding to troubles for the country’s exporters.
The actions, which sent the won reversing from an early spurt to end the session lower, came after a period in which fund inflows from low-yielding economies have combined with a weakening yen to push the South Korean currency sharply higher.
“We are close to the stage in which specific steps need to be taken,” deputy finance minister Choi Jong-ku told reporters at an unscheduled briefing, adding there were “excessive expectations” that the won would further strengthen.
The won ended local trade down 0.3% on the day at 1,085.9 per dollar. This year, it has gained 6.1% against the dollar and 14.4% against the yen.
Dealers said they believed that dollar-buying intervention by monetary authorities was the strongest since October 2011. However, they said the government still appeared wary of not pulling the won down so much as to hamper already weak investment and consumption at home.
“I don’t think the authorities want to beat the market into submission,” said a local bank dealer. “As opposed to artificially pushing the won down, the authorities seem to be signalling that they will manage the extent of its gains.”
South Korea’s export-reliant economy, the fourth-largest in Asia, saw quarterly growth almost grind to a halt in the July-September period on weak exports and the resultant drop in corporate investment.
Choi said the government’s first option for cooling the won would be cutting currency derivatives ceilings at banks, which could slow the fund inflow. Authorities will decide next week whether to lower the ceilings.
A foreign-exchange dealer said authorities “have forcefully expressed their intent to defend the exchange rate,” adding that 1,080 would serve as a major support level for the dollar/won rate for some time.
The Bank of Korea and the Financial Supervisory Service earlier this month began a joint inspection of foreign-currency trading by banks operating in the country.
South Korean exports in the first 20 days of November rose by just 0.3% year-on-year while imports fell 2.3%, producing a $193 million trade surplus, customs data published on Wednesday showed.
The fresh data indicates that the world’s seventh-largest exporter will continue running a current account surplus, which will provide an additional boost for the won. Reuters