BOK announces plans for FX market intervention using foreign reserves

The Bank of Korea (BOK) said Thursday that it would take steps to stabilize the foreign exchange market using the nation`s foreign exchange reserves. Foreign exchange authorities seldom make public their intention to make a direct intervention.

Analysts said the central bank took the measure to prevent the won`s steady fall against the U.S. dollar from negatively affecting the bond and stock markets. They said the won was sliding more rapidly against the dollar than the Japanese yen, largely due to speculative demand.

BOK assistant vice governor Lee Jae-Uk called a news conference Thursday to announce that the bank`s past measures to increase the dollar supply, including making several verbal interventions, had fallen short of removing market jitters. ``Now we are considering taking more direct measures,`` he said.

Lee said the rapid increase in the won-dollar exchange rate was pushing up interest rates and squeezing stock prices, despite the fact that the nation had no foreign exchange supply and demand problems or external credibility. He said now is the time for aggressive measures.

Meanwhile, Kim Yong-Deok, director of international financing at the Ministry of Finance and Economy (MOFE), said that mobilizing foreign exchange reserves should only be done in consultation with MOFE. Saying now may not be the time for such a move, Kim added, ``I believe Lee`s remarks were a statement of his willingness to consider the idea when it is deemed necessary.``

Park Hyun-Jin witness@donga.com