South Korea’s central bank on Thursday agreed a deal with the National Pension Service that allows the latter to secure up to $35 billion in funds outside the standard foreign exchange market, a move offering support to the beleaguered Korean won.
The move comes in the wake of the won weakening more than 8% versus the dollar in just two months, hit by a ballooning trade deficit and a fresh wave of risk aversion in global markets.
The won sharply extended gains against the dollar soon after the announcement, strengthening as much as 0.66% on the day. It wasn’t immediately clear whether any dollar-selling intervention by Korean authorities in currency markets had taken place at the same time.
The Bank of Korea said in a statement that the agreement with the pension service, similar to a $10 billion swap arrangement between the two that expired at the end of last year, would help absorb some of the dollar demand on the onshore currency market.
In early March, Finance Minister Choo Kyung-ho told reporters the Bank of Korea and the National Pension Service could establish a swap agreement, under which the pension service could secure dollars outside the market.
The world’s third-largest pension fund, valued at 917 trillion won ($692.40 billion) at the end of January, needs to exchange around $1 billion of local currency into dollars each month for investment abroad.
Reuters