Seoul says excessively weak Korean won not 'desirable' in latest verbal intervention
The won-dollar exchange rate is displayed at a bank counter in Terminal 2 of Incheon International Airport, Tuesday. Yonhap
Foreign exchange authorities said Wednesday that an excessively weak Korean won is undesirable, adding the market will soon see their strong commitment and capacity for comprehensive policy execution to stabilize the local currency.
The verbal intervention came as the local currency neared its weakest level in 16 years against the U.S. dollar in recent weeks despite a series of stabilization measures by the authorities.
"Excessive weakness of the won is not desirable. The government has held a series of meetings over the past one to two weeks and announced agency-specific measures as part of an effort to demonstrate its strong commitment and its capacity for comprehensive policy execution. This will soon become clear," the Finance Ministry and the Bank of Korea (BOK) said in a brief press notice.
The local currency slipped to below the psychologically important 1,450-won level in November for the first time since April and has remained under persistent pressure.
On Tuesday, the won was quoted at 1,483.6 per dollar, the lowest level since April 9, when it hit the yearly low of 1,484.1.
The April 9 figure was also the weakest since March 12, 2009, when the won closed at 1,496.5 during the global financial crisis.
The won opened weaker at 1,484.9 per dollar at 9 a.m. Wednesday but rebounded following the strong verbal intervention. As of 9:30 a.m., it was trading at 1,470.2 per dollar.
"Despite a series of market stabilization measures and the net stock buying by foreign investors on the main bourse, the won has continued to weaken. It appears to have been driven by dollar-buying demand from importers for payments and from investors seeking to invest in overseas equities ahead of the year-end," said Suh Jeong-hoon, a researcher from Hana Bank.
The screen shows the KOSPI index and currency exchange rate at a dealing room at Hana Bank's headquarters in Seoul, Tuesday. Yonhap
In response, the finance ministry, the BOK, the National Pension Service (NPS) and the welfare ministry that oversees the pension fund have formed a four-way consultative body that will work to devise a "new framework" to align the NPS' investment returns with market stability and ease volatility in the foreign exchange market.
The NPS' large-scale overseas investments are considered one of key factors affecting supply and demand in the FX market, and some analysts speculate that the fund may move to sell large amounts of dollars through currency hedging.
The welfare ministry has decided to run a task force to draw up detailed plans for the NPS' strategic currency-hedging strategy.
The government and the BOK have also announced a series of measures, including adjustments to the forward foreign-exchange position system, a reduction in the burden of foreign currency liquidity stress tests and an expansion of foreign currency lending in the Korean won to residents.
The presidential office has convened an emergency meeting with the chiefs of the country's seven largest companies to seek ways to stabilize the local currency.