Won Falls to Six-Month Low on Concern Korea Will Curb Fund Flows
South Korea’s won touched the weakest level since September after the government said it will consider steps to curb capital flows if needed. Government bonds dropped.
Eun Sung Soo, director general at the finance ministry, told reporters today that both new measures and tightening of existing ones will be possible. Policy makers will consider “various” financial taxes if needed and closely monitor foreign-currency debt, he said. The won also fell as investors shunned emerging-market assets after Cypriot lawmakers rejected an unprecedented levy on bank deposits.
“Recent moves in the currency show volatility has widened due to various factors in international financial markets, including Cyprus and yen movements,” said Kwon Young Sun, Hong Kong-based economist at Nomura International Ltd. “It’s prudent for authorities to try to focus their policy on risk management as they pre-emptively try to reduce volatility and also shun expectations for future currency moves.”
The won dropped 0.5 percent to 1,116.30 per dollar in Seoul, after declining as much as 0.8 percent, according to data compiled by Bloomberg. The currency touched 1,119.95 per dollar, the weakest since Sept. 27. One-month implied volatility for the won, a measure of expected moves in the exchange rate used to price options, climbed 20 basis points, or 0.2 percentage point, to 8.98 percent.
“To ease capital flow volatility, South Korea will consider introducing various financial taxes if needed,” Eun said in Seoul. “Tightening existing measures is also possible.”
Bank of Korea
A crisis that has rocked the global economy and financial system in recent years may have entered its final stage, South Korean central bank Governor Kim Choong Soo said at a meeting with economists in Seoul today. Kim, who didn’t mention Cyprus, said the Bank of Korea will consider domestic growth and inflation and global conditions for trade when setting policy.
The authority kept benchmark borrowing costs unchanged at 2.75 percent at a March 14 review.
The yield on South Korea’s 2.75 percent bonds due December 2015 rose one basis point to 2.60 percent, according to prices from Korea Exchange Inc.
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