Bank of Korea backtracks on forex intervention
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Bank of Korea backtracks on forex intervention
By Anna Fifield in Seoul
Published: May 19 2005 09:45 | Last updated: May 19 2005 09:45
The Bank of Korea on Thursday backtracked on its comments that it did not plan to intervene further in the foreign exchange markets, after precipitating a sharp fall in the US dollar overnight.
Currency traders said it appeared that the central bank in fact bought dollar-denominated assets on Thursday morning, less than 24 hours after Park Seung, the governor, told the Financial Times that he did not “anticipate” doing so.
“I believe that we now have sufficient reserves to secure our sovereign credibility, so I do not anticipate increasing the amount of foreign reserves further,” Mr Park said in an interview on Wednesday.
When asked during the interview if that meant the bank would not be intervening in the foreign exchange markets, Mr Park responded: “No, no, we will not be intervening.”
Interview transcript
Click hereThe bank has been buying heavily in the foreign exchange markets to contain the won, taking its reserves to $206bn, the fourth largest in the world. It has still appreciated by 30 per cent against the US dollar over the past three years, 17 per cent of that in the last year alone.
Mr Park’s comments pushed the won up sharply against the dollar in US trading on Wednesday, and it hit 999.5 immediately after the local market opened on Thursday but shortly fell back below the psychologically-important 1,000 mark to close at 1,005.
The central bank on Thursday confirmed that Mr Park had been quoted accurately but it nevertheless released a statement saying that he had been “misunderstood.”
“The Bank of Korea will take necessary measures whenever the currency markets are unstable. Especially, we will not sit idly by if speculative funds come in to exploit a groundless news report,” it said.
In February the dollar suffered its biggest fall in five months after the Bank of Korea submitted a report to the National Assembly saying it intended to get better returns on its reserves by diversifying the currencies in which they were held. The following day, the central bank said it was not selling dollars and there was no short-term change in its currency reserves.
Analysts say that on macroeconomic grounds, there is no reason for the bank to continue intervening.
“Using traditional and even some non-traditional measures of reserve adequacy, several Asian countries including South Korea have had more than sufficient reserves for some time,” said Richard Yetsenga, Asian forex strategist at HSBC. “In that sense, the Bank of Korea’s recognition of this should not surprise the market.”
Mr Yetsenga was skeptical of the bank’s suggestion that it would not intervene further. “We have a view that the fundamentals of the Korean won will lead to further strengthening so we expect the policy authorities to moderate that strength through further reserve accumulation,” he said.
Even Han Duck-soo, finance minister, last month said that reserves of about $200bn “may be adequate” for South Korea. But on Thursday Mr Han said Korean authorities would continue taking action when the foreign exchange market showed any instability.
“When we see speculative forces and excessive volatility, we will act together with the Bank of Korea through smoothing operations,” he told reporters on the sidelines of a conference in Seoul.
