South Korea’s foreign-exchange reserves dropped for a second month last month, a sign the central bank likely intervened to stem a slide in the won.
The reserves fell US$2.88 billion to US$367.94 billion, after a July drop of US$3.93 billion that marked the biggest decline in three years, central bank data showed yesterday.
The won sank last month to its weakest level since October 2011 as China’s surprise devaluation of the yuan dimmed the outlook for exports, weakening emerging-market currencies across Asia and a military standoff between North and South Korea heightened tensions on the peninsula.
“We can presume from the decrease in reserves that the authorities have sold dollars in the market,” Samsung Futures Inc currency analyst Jeon Seung-ji said.
“The government’s will to adjust the pace of drop is shown in the reserves, and the moves in Asian currencies will be in focus for some time,” Jeon said.
The won fell to 1,199.68 per US dollar on Monday last week, the weakest level in almost four years, and Bank of Korea said that day efforts to calm markets were important.
An official, who asked not to be identified in keeping with central bank policy, yesterday declined to comment on speculation that authorities intervened to support the exchange rate last month.
Minutes of the authority’s Aug. 13 policy meeting showed this week that a board member warned China’s economic slowdown and the devaluation of the yuan could pose significant headwinds to South Korea’s economy.
The won fell 0.8 percent to 1,190.28 per US dollar yesterday. The currency has lost 6.3 percent this quarter, with only Malaysia’s ringgit performing worse in Asia.
The drop in the reserves “suggests intervention,” Daishin Economic Research Institute currency analyst Hong Seo-chan said.
“The authorities’ main focus seems to have shifted to calming nerves after China’s yuan devaluation, from supporting export competitiveness against a weak Japanese yen. The won will continue to show a downward trend along with Asian currencies,” he said.
Separately, the Philippines is to refrain from joining any currency war brought about by China’s yuan devaluation, Bangko Sentral ng Piipinas Governor Amando Tetangco said, signaling he is to stick to current monetary and foreign-exchange policies.
“You may ask, should we also devalue the peso? After all, a currency war seems to be in play,” Tetangco told participants at a Bloomberg currency forum on Wednesday in Manila.
“Given the size of our domestic market, we don’t think there’s compelling reason to deviate from our current foreign-exchange policy of allowing the markets to broadly determine the exchange rate,” he said.
Vietnam and Kazakhstan followed China in devaluing currencies last month, as pressure mounted on countries that trade with or vie with China to keep their exports competitive.
While the Philippines is unlikely to go against the trend, the central bank is prepared to enter the market to smooth volatility that could disrupt business planning and dislodge inflation expectations, Tetangco said.
“Just as we did during the period of strong capital inflows in earlier years, we will allow the exchange rate to adjust to market conditions also during this period when potential for capital outflow will increase,” Tetangco said.
The peso fell 0.1 percent to 46.76 per US dollar as of 11:22am yesterday in Manila, according to prices from Bankers Association of the Philippines. The currency has lost more than 4 percent this year.
Bangko Sentral ng Pilipinas will not necessarily follow the moves of the Federal Reserve, Tetangco said. It might not reverse tightening steps it made last year, he said.
“From indications, there may be no need, at this point in time, for economic stimulus from monetary policy,” Tetangco said.
The central bank is likely to consider actual and expected capital outflows that might result from the recent global financial market rout and their impact on domestic liquidity, he said.
Officials will review balance sheets and portfolios, he said.
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