South Korea's foreign reserves fall to five-year low

South Korea's foreign exchange reserves fell by nearly $5 billion in April, slipping to their lowest level in five years, the Bank of Korea said on Thursday.

The central bank said reserves stood at $404.67 billion at the end of April, down $4.99 billion from the previous month. It was the lowest level since April 2020, when reserves totaled $404.98 billion, and the biggest monthly drop since April last year, when they fell by $5.99 billion.

The central bank said the decline was temporary and tied to a currency swap with the National Pension Service. Under the agreement, the pension fund borrows U.S. dollars from the Bank of Korea to finance overseas investments, avoiding direct purchases on the market that could push up the won-dollar exchange rate. Last year, the NPS signed a deal allowing it to borrow up to $65 billion from the bank.

Some analysts have warned that reserves could fall below the psychologically important $400 billion mark. Reserves have dipped below $410 billion twice this year, in February and April.

But Hwang Moon-woo, head of the Bank of Korea's foreign exchange accounting team, downplayed the concerns. He said funds will return when the currency swap matures and noted that a recent drop in foreign currency deposits at financial institutions was seasonal. "The likelihood of reserves falling below $400 billion is low," Hwang said.


강우석기자 wskang@donga.com