Asian Currencies: Korean Won Advances on Central Bank Support

By David Yong and Judy Chen

July 7 (Bloomberg) -- South Korea's won rose, leading gains across the region, after the government said it will take ``stern action'' to stabilize the currency, including using foreign-exchange reserves to stem its decline.

The currency gained the most in almost three weeks as the central bank also pledged similar action in a statement released today in Seoul. The won has weakened 10.2 percent this year, the second-worst performer of the 10 most-active currencies in Asia outside Japan. China's yuan traded near the highest level since a dollar link was scrapped in July 2005 after the government said fighting inflation will be a ``preeminent'' economic policy.


``The Bank of Korea and Ministry of Finance will do everything to stabilize the market,'' said Jeff Kim, a currency dealer at Korea Exchange Bank in Seoul. ``Currency interventions will follow.''

Korea's currency gained 0.8 percent to 1,042 versus the dollar as of 12:19 p.m. local time, according to Seoul Money Brokerage Services Ltd.

``We will closely watch the won's movement and will take strong necessary measures if the imbalance seems excessive,'' the central bank said today. Finance ministry official Choi Jong Ku said in Seoul that the authorities would consider using foreign-exchange reserves to stabilize the currency market.

Central banks intervene in currency markets by buying or selling foreign exchange. South Korea has purchased about $7 billion of won since the end of May to support its currency, JoongAng Ilbo newspaper reported July 1.

`Preeminent'

The yuan rose to 6.8559 per dollar from 6.8589 at the end of last week, according to the China Foreign Exchange Trade System, extending a six-week rally. Premier Wen Jiabao said yesterday the government's fight against inflation will have a ``preeminent'' role to ensure inflation remains tolerable.

``The currency will rise as the central bank relies on appreciation to control imported inflation,'' said Liu Dongliang, a foreign-exchange analyst in Shenzhen at China Merchants Bank Co., the country's sixth-largest lender. ``The financial authorities may raise interest rates after the Olympics, which will ease their dependence on the currency tool.''

China has allowed its currency to gain 6.5 percent this year, helping to curb the price of imports, as the nation battles to slow consumer-price increases. Vice Premier Wang Qishan said the country will tighten monetary policy, the Shanghai Securities News reported today.

Central bank Governor Zhou Xiaochuan said on June 30 he won't rule out an interest-rate increase to curb inflation near the fastest in 12 years. The People's Bank of China hasn't raised its one-year lending rate after seven increases in 2007.

Malaysian Ringgit

Malaysia's ringgit halted a two-week slide after crude oil prices fell as much as 1.1 percent today, easing concern inflation will accelerate. Some 15,000 people rallied outside the capital Kuala Lumpur yesterday to protest last month's 41 percent increase in gasoline prices at pumps.

``Lower oil prices will give some soothing impact to oil- sensitive economies,'' said Suresh Kumar Ramanathan, a rates and currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. The improved sentiment may help support the currency after it ``risked falling off the radar'' of overseas investors due to the increase in political uncertainty, he said.

The ringgit traded at 3.2667 per dollar, compared with 3.2670 at the end of last week, according to data compiled by Bloomberg. The currency fell 0.1 percent last week.

Malaysia has allowed gasoline and diesel prices to rise seven times since May 2004 to help reduce its subsidy payments and ease the pressure on its budget deficit.

Elsewhere, Indonesia's rupiah was little changed at 9,213 per dollar from 9,212 last week. The Philippine peso fell 0.1 percent to 45.475, Singapore's dollar gained 0.1 percent to S$1.3617 and the Thai baht lost 0.2 percent to 33.59.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net; Judy Chen in Shanghai at xchen45@bloomberg.net.