South Korea to ease FX regulations to improve liquidity conditions

SEOUL (Reuters) – South Korea’s financial authorities said on Friday they would loosen foreign exchange regulations to improve liquidity conditions in the currency market, as the won traded at a 15-year low.

“Strict regulations restrain the efficiency of foreign exchange management, and there is a need to take into account worsened foreign exchange liquidity conditions after recent events,” the finance ministry said in a joint statement with the central bank and regulatory agencies.

The South Korean won on Thursday dropped to its weakest level in 15 years, weighed down by risk-averse sentiment after the U.S. Federal Reserve’s cautious stance on more interest rate cuts as well as domestic political uncertainty.

According to the statement, the ceiling of foreign exchange futures contracts will be raised to 75% of capital holdings for local banks and 375% for Seoul branches of foreign banks, from the current 50% and 250%, respectively.

Measures also include allowing companies to take out loans in foreign currencies and exchange the funds for the won, if they are used for investing in facilities such as equipment, property and land purchases.

The ministry said it would implement the measures in a swift manner and consider expanding them after reviewing the effects.