Exchange Rate Falls; Stocks Rise

The won exchange rate against the dollar dropped to the 900 won range for the first time in eight months on the news that the U.S. might stop raising it interest rates, The open market rate also nose dived at the news.

The won-dollar exchange rate on the Seoul Foreign Exchange Market closed at 998.5 won per dollar yesterday, a 6.9 won decline from a day earlier and the lowest figure since May 6 (998.0 won).

Foreign exchange authorities began verbal intervention after the exchange rate dropped below the 1,000 mark shortly after the market’s opening bell.

Gwon Tae-gyun, a director of International finance Bureau in the Ministry of Finance and Economy, said, “An overly lopsided foreign exchange rate is not helpful (for the economy) at all,” adding, “We are closely watching the market, and will take measures, if necessary.”

The authorities directly intervened in the market, placing buy orders for dollars. But this was not enough to keep the exchange rate from going below the 1,000 mark.

The won-dollar exchange rate collapsed because the dollar weakened in the international foreign exchange market on the expectations that the U.S. interest rate hikes, which had continued since June 2004, will stop.

Lee Jun-gyu, researcher for the Korea Institute for International Economic Policy, predicted, “The weakening dollar is a prevailing trend,” adding, “The won-dollar exchange rate will decline through the year.”

The government estimates that a five percent drop in the won-dollar exchange rate would cause a 0.3 percentage point decrease in Korea’s annual economic growth rate.

The closing rate on three-year government bonds, the benchmark rate in the bond market, was 5.06 percent annually, a 0.06 percentage point decline from the previous day.

The KOSPI index closed up 7.24 points (0.52 percent) from the previous day at 1,402.11. The KOSDAQ index closed at 740.48, a 5.33-point increase.

The KOSPI index is operating in the 1,400 range for the first time in the 50 years since its foundation.

The market capitalization combination of the KOSPI and the KOSDAQ markets reached 740.58 trillion won, exceeding 90 percent of the country’s gross domestic product for the first time ever.

The market cap of Samsung Electronics hit the 100 trillion won mark for the first time as an individual company, as the price of it shares rose more than five percent.

Influenced by the uptrend in the U.S. market, stock markets of major Asian countries were also on the rise. The Nikkei Stock Average Index went up 1.55 percent, while stock markets of Thailand (2.46 percent), China (1.39 percent), Singapore (1.08 percent) and Taiwan (0.37 percent) also expanded.

Im-Sook Ha news91@donga.com artemes@donga.com