S.Korea needs to scrutinise won volatility

SEOUL - South Korea needs to scrutinise the won's recent volatility and will take action to stabilise the exchange rate if necessary, Finance Minister Bahk Jae-wan said on Wednesday, the latest warning against the currency's sharp rise.

"The government will closely monitor domestic and international financial market conditions and take appropriate measures should conditions warrant a response," Bahk said at a weekly policy meeting.

Bahk's comments contrast with the views of Vice Finance Minister Shin Je-yoon who said on Tuesday he did not believe current market conditions demanded new regulations to reduce the risks from rapid foreign capital inflows.

At the end of Tuesday's onshore trading, the local currency was up 0.9 per cent against the dollar for the week.

Currency dealers suspect that the Korean foreign-exchange authorities have been intervening to slow the won's appreciation.

The Bank of Korea and the Financial Supervisory Service are also conducting a joint inspection of foreign exchange trading at banks operating in the country.

Analysts say the authorities' foreign-exchange trading inspection was aimed at trying to slow the local currency's appreciation. The checks do not occur on a set schedule but rather when the regulators see a need to show a heightened level of surveillance, they noted.

Though the authorities denied that any change in regulatory policy was imminent, some analysts and foreign-exchange market participants believe the authorities may lower the caps on banks' currency derivative positions to undercut speculation on the won.