South Korea to reactivate FX swap between pension fund, cenbank

By Yena Park and Jihoon Lee

SEOUL (Reuters) -South Koreas finance minister said on Thursday foreign exchange authorities were in talks to reactivate market stabilizing measures, including a foreign exchange swap programme between the pension fund and central bank.

“The measures we took in the fourth quarter to stabilize the foreign exchange market will continue in a consistent manner,” Minister Choo Kyung-ho told reporters, according to a media pool report.

Choo said the Korean wons recent movements were largely in line with other major currencies and that the authorities would continue to monitor the market.

A finance ministry official separately said the authorities would arrange a new currency swap line between the pension fund and central bank in the near future, including maturity extension for the swap deals made during the last programme.

The swap programme, in place for a maximum $10 billion during the final three months of last year, allowed the pension fund to use the central banks foreign reserves for overseas investments when there was increased volatility in the foreign exchange market.

Another official said the new arrangement will be of “enough amount” to ease dollar demand in the onshore market, without providing a specific figure or time frame.

“The currency swap programme will cap the upside for the dollar/won exchange rate, if not drag it lower,” a local currency dealer said.

Earlier this week, U.S. Federal Reserve Chair Jerome Powell said the central bank will likely need to raise interest rates more than expected and is prepared to move in larger steps, lifting the dollar.

The discussion comes less than a week after the chairman of the National Pension Service told Reuters it would collaborate with foreign exchange authorities when needed to help stabilize the market, such as by re-establishing the swap line.

(Reporting by Jihoon Lee and Yena Park; Editing by Muralikumar Anantharaman and Bernadette Baum)