Exchange Rate Sees Largest Drop in 2 Years

Korea-related financial indicators showed more stability in the domestic and overseas financial market as the won-dollar exchange rate fell by its largest margin in 2 years, with premium risk on foreign exchange stabilization bonds and CD interest dropping as well.

Analysts said that the war in Iraq set aside one of the major economic uncertainties that had previously caused a stir in domestic and foreign economies. Accordingly, the effects of the economic downturn in South Korea, and North Korea`s nuclear threat will increase on the financial market.

▽Stabilized financial indicators in Korea

The won-dollar exchange rate on the Seoul exchange market fell 19.8 won from the previous day`s 1249.8 to close at 1230 won. This was the largest drop since April 6, 2001 when it fell by 23. 1 won.

The Bank of Korea (BOK) analyzed that the exchange rate dropped sharply as dollar owners sold off their money with uncertainties of the war in Iraq dissipating.

The premium risk on foreign exchange stabilization bonds, which reflects credit risk in the Korean economy, maintained yesterday`s level of 1.32 basis points.

CD interest did not change drastically, posting 1.15% on April 7, 1.12% on April 8, and 1.15% on April 9.

The premium risk on foreign exchange stabilization bonds soared to 2.15 basis points on March 12, when there were plenty of negative factors at home and abroad, and then gradually dropped from then on. CD interest also registered 2.15% on March 12 and has been on the decline ever since.

“The major indicators reflect the reduced uncertainty related to the war in Iraq,” Byeon Jae-eun, foreign currency manager of the BOK said. “The domestic economic situation and North Korea`s nuclear development program will have a significant effect on major indicators from now on.”

▽Conventional factors become more influential

June gold spot prices on NYMEX today rose to 327.70 dollars per ounce to close at 326.20 dollars, 1% up from the previous day. Gold spot prices on LME also rose slightly to 322.90~323.40 dollars, up from the previous day`s 322.70~323.20 dollars.

The BOK said gold purchases increased to replace the weak dollar and stock market which was on the decline due to worries regarding the sluggish economy.

As pessimistic views gained strength yesterday that the American market would not easily recover from the stagnant situation even after the war in Iraq is finished, the dollar-euro exchange rate in New York took a negative turn for the first time in 5 days.

International oil prices rose slightly with the production limiting movement from OPEC. Dubai oil spot prices rose to 23.28 dollars per barrel, up 0.91 dollars from the previous day.

Kwu-Jin Lim mhjh22@donga.com