Temporary foreign currency reserve remuneration extended through year-end

Employees work at the dealing room of Hana Bank's headquarters in Jung-gu, Seoul, on Thursday morning. [Yonhap]
Employees work at the dealing room of Hana Bank's headquarters in Jung-gu, Seoul, on Thursday morning. [Yonhap]

By Kim Byeo-ri, The Herald Business

The Bank of Korea said Thursday it would extend by six months a temporary foreign currency reserve remuneration measure it introduced at the end of last year to help stabilize the exchange rate.

At a Monetary Policy Board meeting Thursday morning, the central bank decided to extend for six months its payment of interest on excess foreign currency reserves deposited by financial institutions. The interest rate applied to those excess reserves will remain unchanged, tracking the US Federal Reserve's policy rate target range.

The temporary foreign currency reserve remuneration measure allows the Bank of Korea to pay interest on excess foreign currency reserves that financial institutions hold on deposit with the central bank. In December last year, the bank convened an emergency Monetary Policy Board meeting and approved the measure with a deadline of June this year.

Through the measure, financial institutions can earn stable interest income domestically on foreign currency funds they had previously managed mainly overseas, reducing their exposure to risk. The expansion of short-term foreign currency investment options for financial institutions is also expected to draw foreign currency deposits — held abroad by non-financial institutions and individuals — into the domestic market.

In the Seoul foreign exchange market Thursday, the won opened the weekly session at 1,525.5 won per dollar, up 1.3 won from the previous trading day.


kimstar@heraldcorp.com