As the South Korean won shows signs of surpassing the 1,080 won level against the dollar, the government has made verbal intervention in the local foreign exchange market. In line with this move, the government will announce measures to strengthen macroeconomic soundness including lowering the ceiling on foreign currency forward positions within next week.
“Capital flows are excessively volatile in the domestic foreign exchange market.” noted Choi, Jong-ku, Deputy Minister for International Affairs, the Ministry of Strategy and Finance (MOSF) at a briefing Tuesday. “When the volatility becomes higher, we will do our part to curb the excessive strengthening of the won.
The government said it will release measures to strengthen macroeconomic soundness, which are designed to ease capital flow volatility such as lowering the caps on currency forward trades as early as next week.
The government is reported to consider lowering the ceiling on currency forwards held by local branches of foreign banks from 200 percent to 150 percent of their equity capital and local banks’ from 40 percent to 30 percent.
Such government’s efforts to tame the appreciation of the won against the dollar came against the backdrop that the curve is steeper than those of neighboring countries’ currencies. “This year’s lowest point was 1,185.50 won against the dollar set on May 25, but as of now, the parity rate plunged 10 percent from that point and more worryingly, a five percent drop has been made just over last three months,” Choi expressed worries.
The won-dollar exchange rate rose 2.7 won from the previous day to end at 1,085.9 won in Seoul on November 22th.
[Written by Sang-duk Lee - Jieun Lee / edited by Soyoung Chung]
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