UPDATE 1-S.Korea FX reserves inch up; govt not keen on weakening won

Sun Nov 4, 2012 11:38pm GMT
 

* Foreign reserves rise $1.45 bln or 0.5 pct in Oct
    * Gov't focusing on stabilising won

 (Adds details, comments)
    SEOUL, Nov 5 (Reuters) - South Korea's foreign reserves
edged up by the smallest amount in five months in October,
central bank data said on Monday, indicating policymakers have
yet to take active steps in weakening the won against the
dollar.
    Foreign reserves in Asia's fourth-largest economy rose by
$1.45 billion, or 0.5 percent to a record $323.46 billion in
October mostly on investment gains, extending its record-setting
growth into the third month, Bank of Korea data showed.
    It was the smallest gain since a $6 billion plunge in May,
when traders reported seeing authorities intervene to support a
flagging won, sending foreign exchange reserves down by the most
in eight months.
    A recent rally in the South Korean won has triggered qualms
among investors over possible intervention by local foreign
exchange authorities, but movements seen so far in the market
have only hinted at market smoothing by authorities at best.
    "What worries us is not the level of the currency, but the
volatility," said Finance Minister Bahk Jae-wan in an interview
with Reuters on the sidelines of meeting G20 ministers and
central bankers in Mexico City. 
    The won has strengthened 5 percent against the dollar so far
this year, but is still cheaper than currencies of its trade
rivals like Japan and China when measured over a longer period.
    But the heavy liquidity in its financial markets and heavy
reliance on short-term borrowing from abroad by its banking
system have made South Korea among the most vulnerable economies
in the world to global market fluctuations.
    The central bank attributed the gains in the foreign
exchange reserves in October mostly to asset management, rather
than movements in the value of foreign currencies it possesses.
    "I would say the priority is more on stabilising the won,"
said Ronald Man, an economist at HSBC in Hong Kong. Man said
there was room seen for more appreciation in the won against the
dollar and it could reach 1,080 by end-2013.
    Apart from foreign currencies, the Bank of Korea's foreign
exchange reserves also include a small amount of special drawing
rights (SDRs) at the International Monetary Fund, IMF positions
and gold, the central bank said in a statement.
    South Korea, which had the world's seventh-largest foreign
exchange reserves as of the end of September, held 91.7 percent
of its reserves in the form of securities.

 (Reporting by Christine Kim; Editing by Choonsik Yoo and Eric
Meijer)

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