Finance Minister Hong Nam-ki said Thursday the government will step up its efforts to stabilize the foreign exchange market if the South Korean currency's slide against the U.S. dollar is deemed excessive.
Hong's verbal intervention came as the Korean won has sharply weakened against the dollar because Russia's invasion of Ukraine prompted investors to chase safer assets.
The Korean won fell to end at the 1,240 level against the greenback for the first time in nearly two years Monday.
"If we judge that the won's weakness is excessive, we will step up efforts to stabilize the FX market by taking into account South Korea's economic fundamentals and movements of other currencies," Hong said at a government meeting.
The government will also maintain its eased rules on banks' foreign exchange derivative positions at least until the second quarter in a bid to cope with the potential shortage of foreign currency liquidity in a preemptive manner.
In March 2020, South Korea relaxed rules on banks' foreign exchange forward positions after the country's foreign exchange and swap markets suffered a severe dollar crunch caused by market routs over the pandemic.
Under the measure, the government raised the cap on the holding of local banks' foreign exchange forward positions to 50 percent of their equity capital from the previous 40 percent. For local branches of foreign banks, the cap was lifted to 250 percent from 200 percent.
Hong also said the government will decide this month whether to further extend eased liquidity rules on banks.
In April 2020, the financial regulator lowered the foreign exchange liquidity coverage ratio for banks to 70 percent from 80 percent. (Yonhap)
