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Credit worries take toll on South Korean won
By Song Jung-a in Seoul

Published: March 12 2008 00:48 | Last updated: March 12 2008 00:48

The South Korean won hit its lowest level in almost two years against the dollar on Tuesday amid concerns that a global credit squeeze would hinder growth in Asia�s third largest economy.

A worsening current account deficit and heavy stock selling by foreign investors have pushed the won down 4 per cent against the dollar this year while most other currencies in Asia have strengthened.

The won and the Indian rupee are the only two of Asia�s 10 most traded currencies outside Japan that have weakened against the dollar in 2008, says Bloomberg.

A senior Bank of Korea official said the pace of the weakening won in recent days had been �too fast� and the central bank was watching the market closely � hinting at possible intervention.

Referring to dollar selling by exporters and foreign fund inflows for bond investment, Ahn Byung-chan, director-general of the central bank�s international department, said: �Market participants are heavily tilted towards the rising exchange rate but there are some factors that could drive it down.

�Investors should have a balanced view of supply and demand. The market�s volatility has increased but there are some signs of stabilising.�

Mr Ahn said he expected the current account to remain in deficit next month but to strike a balance or return to profit in May once foreign investors completed their repatriation of dividend payments.

Overseas investors are expected to convert about $6bn of dividend payments into foreign currencies between March and April, which is expected to add to pressure on the won.

Experts forecast the won�s depreciation against the dollar to continue. Park Chan-ik, head of Korea research at Morgan Stanley, adds: �The won is likely to remain weak due to the current account deficit, which could improve the country�s trade terms compared with its neighbours�.

South Korea reported a $2.6bn current account deficit in January, its biggest in almost 11 years, as higher oil prices drove up import costs.

Goldman Sachs estimates that rising commodity prices will worsen Korea�s terms of trade by about 12 per cent to 14 per cent this year. The country�s benchmark Kospi stock index has fallen 13.5 per cent this year as foreign investors sold a net $13bn worth of shares.

Kwon Goo-hoon, economist at Goldman Sachs, forecast that the won would trade at 935 to the dollar over the next 12 months but he saw a �significant risk� that the won could trade weaker than that if the global financial turmoil continued and the authorities did not intervene in the market.

[Bibbitybop]

I blame the banks for not giving foreigners ATM cards.