Korean Won Rises to Two-Week High as Central Bank May Be Buying

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Korean Won Rises to Two-Week High as Central Bank May Be Buying

Post by MrsCK on Tue Jul 08, 2008 7:36 am



Korean Won Rises to Two-Week High as Central Bank May Be Buying

By Judy Chen and William Sim

July 8 (Bloomberg) -- South Korea's won rose to a two-week
high on speculation the central bank is intervening to
strengthen the currency and slow inflation at the fastest in a
decade. Government bonds gained.
The won advanced for a second day after the Ministry of
Finance and Bank of Korea said yesterday they will use the
nation's $258 billion foreign-exchange reserves to support the

President Lee Myung Bak yesterday sacked Vice Finance
Minister Choi Joong Kyung, in charge of currency policy, as the
won slid as much as 11.5 percent versus the dollar this year.
``It seems that there was an intervention this morning,''
said Jung Chan Ho, a currency dealer in Seoul at Shinhan Bank, a
unit of South Korea's second-biggest financial group. ``The
intervention could be $1 billion or more.''

The won gained 1 percent to 1,032.70 against the dollar as
of the 3 p.m. close of local trading, according to Seoul Money
Brokerage Services Ltd. The currency touched 1,026, the
strongest since June 20. The won is the world's best performing
major currency in the past two days.

The government, which previously advocated a weaker won,
has changed its stance as record oil prices push up import costs
and widened the current-account deficit. Deputy Finance Minister
Shin Je Yoon pledged today that authorities will maintain a
stable currency policy.

The financial authorities bought about $7 billion of won
since the end of May to help boost the currency, JoongAng Ilbo
newspaper reported July 1. The government doesn't disclose its
actions in the currency market. Central banks intervene in
currency markets by buying or selling foreign exchange.

Exports Slowing
Export growth slowed to 17 percent in June as shipments to
Europe fell and truck drivers went on strike to protest rising
prices. Overseas investors sold more local shares than they
bought for the past 22 days as President Lee said on July 6 he
may lower his economic growth target for the next two years.

Consumer prices rose 5.5 percent in June from a year
earlier, the biggest increase since 1998, as crude oil climbed
toward a record $145.85 per barrel on July 3. Korea imports
almost all of its energy needs. A weaker currency pushes up the
costs of imports.

``We are still underweight on the won due to oil prices,
slowing growth and the current-account deficit,'' said Thomas
Harr, a senior currency strategist at Standard Chartered Plc in
Singapore. ``We will have to monitor the foreign-exchange
intervention as they could get quite aggressive.''

Higher Reserves
Asia's policy makers have been accumulating foreign-
exchange reserves since countries in the region spent most of
their reserves to support their currencies during the 1997-1998
financial crisis.

``The government has set top priority on stabilizing
inflation and we will have to manage the foreign-exchange market
to meet that goal,'' Choi Jong Ku, head of the finance
ministry's international finance bureau, said yesterday. ``We
will use foreign-exchange reserves again if necessary'' to curb
the won's decline, he said.
Government bonds rose on speculation inflation may have
peaked as the authorities act to strengthen the currency,
helping to preserve the value of the fixed payments from debt.

``More investors seem to think inflation may ease as the
government intervened in the foreign-exchange market to keep the
won from falling,'' said Ra Woo Sik, a fund manager in Seoul at
the Industrial Bank of Korea, the country's biggest lender to
small- and medium-sized companies.

The yield on the 5.5 percent note due September 2017 fell 2
basis points to 6.11 percent, according to Korea Exchange. The
price climbed 0.15, or 15 won per 10,000 won face amount, to
97.55. A basis point is 0.01 percentage point.
To contact the reporters on this story:
Judy Chen in Shanghai at
William Sim in Seoul at


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