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Title Seoul determined to arrest won's rise
Name Standardmold
Date Time/Hit 2006-05-11 22:17:00 / 1016

Seoul is "firmly determined" to curb the ongoing Korean won's strong rally, Deputy Finance Minister Kim Seok-dong said.

In a radio show, Kim said the government will intervene in the market to stabilize the won's movement, if speculative trades add too much volatility.

"The current pace of the won's appreciation has been too fast," he said.

But he did not specify the monetary authority's countermeasures.

Kim's stronger-than-expected remarks halted the rapid appreciation of the local currency yesterday. The won traded at 934.5 per dollar as of 1:40 p.m. in Seoul.

This compared with Wednesday's close of 929.60, which is near the highest level since October 1997.

Although some experts raised concern over the mounting international pressures on the Asian currencies, many observers estimated the Korean won had almost reached its peak.

"There exists no more threat to the currency market in the country," said Kwak Young-hoon, an economist at Hana Securities Co.

He backed his forecast with recent loss-making international balance, growing overseas consumption and the government's deregulations of offshore investment.

"It might fall further in the third and fourth quarter of the year," Kwak added.

The central bank's cautious move to freeze the interest rate yesterday also additionally pared off the value of the Korean won.

Bank of Korea Governor Lee Seong-tae cited the strong currency and oil price hikes as grounds for his decision to keep the benchmark interest rate unchanged at 4 percent.

Despite such stronger efforts to put the breaks on the won's rise, concerns over speculative capital are still lingering in the market.

"It is difficult to estimate the moves of speculative demands," Kwak pointed out.

Since international hedge funds can agilely move their investment from market to market for short-term profits, foreign exchange watchers cautioned an abrupt influx or outflow of the hot money could damage the market.

The Korean currency has appreciated around 8 percent against the U.S. dollar this year, making it Asia's third-best performer after the Indonesian rupiah and the Thai baht rise.

Outperforming other peer currencies such as the Japanese yen and Chinese yuan, the won's bullish rally has elevated the overall price of Korean-made products overseas.

Market watchers warned that this could substantially dampen exports, a major growth engine for Asia's third largest economy.

Meanwhile, a Shinhan Bank report said the recent sharp appreciation of Korea's currency against the U.S. dollar is partially a result of foreign funds buying stocks in the local market.

"A steady increase of foreign capital in the local market is contributing to the won's ascent against the dollar," Lee Hyun-wu, an employee at a Shinhan research unit, said in a report.

"Expectations by investors for a local stock market rally and future ascent of Asian currencies are encouraging foreign funds to enter here," Lee said.

On Monday, Korea's currency finished at an eight-year high against the dollar on a bullish run in the local stock market and the global weakness of the greenback.

According to the report, a total of $9.7 billion worth of foreign capital flowed into Korea for investment purposes from November until February. In January alone, the capital reached $5.4 billion.

"Such investment funds are boosting the value of the won, which was supposed to fall from a recent slowdown in export growth and other factors," he said.

"Until the year's end, the won will trade at a lower range of 900 won to the U.S. dollar," the analyst said.

(kkt@heraldm.com)

By Ko Kyoung-tae



2006.05.12

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