Bank of Korea announces temporary measures to boost dollar supply in FX market
The logo of the Bank of Korea is seen on the top of its building in Seoul, South Korea, March 8, 2016. Picture taken on March 8, 2016. REUTERS/Kim Hong-Ji
SEOUL, Dec 19 : South Korea's central bank announced on Friday temporary measures aimed at boosting dollar supply in the onshore foreign exchange market, in the latest policy efforts to contain sharp losses in the won currency.
A Bank of Korea official also said that authorities were intervening to sell dollars in the market to smooth exchange rate moves.
Persistent weakness in the won, which policymakers attribute to increasing overseas investments by the country's national pension fund, retail investors and companies, is raising concerns about higher inflation.
"The supply-demand imbalance in the foreign exchange market has become severe, warranting short-term improvements," the Bank of Korea official told a briefing after an internal meeting.
The Bank of Korea said it would pay interest on financial firms' reserve deposits for foreign currency payments that exceed requirements, for a temporary period of six months from January, to induce inflows of assets held overseas.
There will also be an exemption for financial firms from having to make deposits to the government to hold foreign currency debt to ensure foreign exchange stability, the central bank said, after the out-of-schedule monetary policy board meeting.
The won hit on Thursday its weakest level since April 9 at 1,482.1 per dollar, falling more than 8 per cent against the dollar in the second half of this year. The currency is down 0.6 per cent this year to date, set for the fifth straight yearly loss.
Earlier this week, the central bank extended its currency swap line with the National Pension Service to absorb dollar demand from the pension fund's overseas investment, while the finance ministry decided to loosen currency forward caps on local banks to supply more dollars in the onshore market.
On Thursday, the country's presidential policy adviser, Kim Yong-beom, met with major exporting companies for discussions on the foreign exchange market. He warned companies not to seek profit from the weakness in the won, according to media reports.
The Financial Supervisory Service said on Friday it would look into financial firms' business practices of encouraging overseas investment, while requiring them to suspend promotional events and inform customers more thoroughly of the risks.
