May 19, 2005

South Korea Intervenes

Yes, they did say yesterday that they were done.

Details from the FT:
The Bank of Korea on Thursday backtracked on its comments that it did not plan to intervene further in the foreign exchange markets, after precipitating a sharp fall in the US dollar overnight.

Currency traders said it appeared that the central bank in fact bought dollar-denominated assets on Thursday morning, less than 24 hours after Park Seung, the governor, told the Financial Times that he did not "anticipate" doing so.

Baffled about how this would happen. It is not that difficult to give an interview and repeat stock phrases. Probably doesn't mean much over the short-run as traders will just be left ignoring all comments. In the long-run the loss of credibility could really limit the bank's options.

I've got to wonder if it is not some sort of bureaucratic foul-up, either on the intervention or the statement. Seems like somebody needs to lose a job over it.

* Update 10:20 - Brad Setser's thoughts:

What is going on? It sure seems like the Bank of Korea (the central bank) and the Ministry of Finance (if not the entire government) are in somewhat different places. The Finance Ministry is worried about any slowdown in growth, and Korea's export growth seems to be slowing. This policy dispute just played out in a very public way.

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