Currency swap with U.S. to help stabilize financial market: BOK chief

(ATT: ADDS currency rate, stock index in 4th para, details in last four paras)
SEOUL, Oct. 30 (Yonhap) -- A currency swap deal between the United States and South Korea will help ease the dollar shortage of local lenders and stabilize the local financial market, the head of Seoul's central bank said Thursday.

The U.S. Federal Reserve announced Wednesday that it will sign a currency swap
arrangement of up to US$30 billion each with the central banks of South Korea,
Mexico, Brazil and Singapore, to help improve liquidity conditions in the global
financial markets and to mitigate the spread of difficulties in obtaining U.S.
dollar funding in fundamentally sound and well-managed economies.
"The currency swap deal with the U.S. Fed will help stabilize the local financial
market," Bank of Korea (BOK) Gov. Lee Seong-tae told reporters. "The swap deal
will also contribute to stabilizing the currency market."
The local currency was trading at 1,299.50 as of 11:05 a.m., up 127.5 won from
the previous session's close, and the country's key stock index, the KOSPI, rose
8.07 percent to 1,047.2.
Despite ample foreign reserves of more than $240 billion, South Korea's currency
has plummeted to a 10-year low against the U.S. dollar as foreign investors
continued to pull a huge amount of money out of local stocks amid concerns that
local banks may face difficulty repaying short-term foreign debts.
"South Korea has made the swap deal as part of efforts to secure secondary
support measures, not because of a shortage of foreign reserves," Lee said,
adding the temporary arrangement, which will be in effect until April 30 next
year, may be extended if necessary.
The central bank's chief said the won, which has lost more than 30 percent so far
this year, has fluctuated so excessively in the past few months due to inflated
fears.
"The swap deal will provide some room for the central bank to implement its
monetary policy over the long-term," Lee said.
The BOK slashed its key interest rate by 0.75 percentage point to 4.5 percent
last week, the biggest-ever reduction, in order to help stabilize the local
financial market and support the sagging economy.
Some experts have raised concerns that the rate cut will put more downward
pressure on the local currency, which will in turn increase already-high
inflation.
Analysts said the currency swap deal and a narrowed current account deficit will
help stabilize the currency market, which will provide room for the central bank
to make additional rate cuts.
South Korea's current account deficit narrowed sharply in September from a record
high one month earlier as oil prices fell and exports remained bullish, the
central bank said earlier in the day.
The current account shortfall reached US$1.22 billion in September, compared with
a deficit of $4.7 billion the previous month, it said adding that the economy is
expected to post a current account surplus of more than $1 billion in October.
"The currency swap deal and narrowing current account deficit will help the
central bank to take another monetary easing measure (rate cut) in order to boost
the flagging economy," said Bae Min-keun, a researcher at LG Economic Research
Institute.
sam@yna.co.kr
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