South Korea vows to fight volatility after won hits three-month low

SOUTH Korea’s finance minister has promised to act swiftly to curb excessive volatility in the won, the latest sign officials are growing nervous about the currency after it fell to a three-month low.

Korean authorities “will respond promptly according to contingency plans” in the event of excessive volatility in either the currency or the country’s broader financial markets, Finance Minister Choi Sang-mok said on Monday (Oct 28).

The warning came after the won has slumped more than 5 per cent in October, fuelling concerns about financial stability and raising difficult questions for the country’s central bank. Bank of Korea (BOK) governor Rhee Chang-yong told reporters last week that the weakness of the currency is now a factor in rate decisions, but a slowing economy has raised the case for more cuts.

The Korean won slumped against the US dollar on Friday, hitting its weakest level in around three months and edging towards the closely watched price of 1,400 won per US dollar.

South Korea joins a growing chorus of officials in Asia worried about how their currencies are performing, as the resurgence of the US dollar sends shockwaves across the region and traders price in the prospect of sweeping trade tariffs should Donald Trump return to the White House. A Bloomberg gauge of Asian currencies has slumped for four straight weeks and traded at the lowest since Aug 19 on Monday.

South Korea is known to regularly step into the market to smooth movements when volatility is high, a tactic also used by Indonesia and India. Earlier this year, Seoul issued a rare warning to traders when the won breached 1,400 per US dollar. It was at 1,388.90 per US dollar in early trading on Monday.

“As the volatility of the global financial market may increase in connection with the US presidential election and major countries’ monetary policy decisions in the future, we must be especially vigilant and closely monitor the development of related risks and their impact on domestic and international finance and economy,” Ryoo Sangdai, a senior deputy governor at BOK, said.

Finance Minister Choi’s statement came around three months after the government made it easier for foreigners to trade the Korean won, part of a charm offensive designed to get its government bonds included in global indexes. FTSE Russell said earlier this month it would add South Korea’s bonds to its World Government Bond Index, which analysts think will ultimately attract foreign inflows of between US$56 billion and US$70 billion. BLOOMBERG