Overview
- The finance ministry, the Bank of Korea and the National Pension Service approved the renewal as the existing facility approached its year-end expiration.
- The central bank said the arrangement will absorb the NPS’s spot dollar purchases during volatile periods to ease pressure on the foreign exchange market.
- Hedging through the swaps is intended to reduce exchange-rate risk on the NPS’s overseas investments and support the fund’s returns.
- The step follows recent won weakness, with the currency quoted near 1,471 per dollar on Dec. 15 after trading below the closely watched 1,450 level.
- Officials formed a four-way FX consultative body last month, and they attribute recent currency declines to local U.S. stock buying, NPS flows and offshore profit-taking.