March 19, 2020 / 2:11 PM / 14 days ago

UPDATE 1-Bank of Korea to inject dollars to onshore markets via currency swap with Fed

(Updates with detail)

By Joori Roh and Cynthia Kim

SEOUL, March 19 (Reuters) - South Korea’s central bank on Thursday said it will immediately inject dollars into local financial markets using a currency swap facility it is signing with the U.S. Federal Reserve to help ease a growing dollar shortage in onshore markets.

The Fed said the Bank of Korea (BOK) is one of nine central banks it has signed new dollar swap lines with in a coordinated action to prevent the coronavirus epidemic from causing a global economic rout.

The agreement with South Korea is a $60 billion bilateral currency swap facility for at least six months, which the BOK will “draw on to ease mismatches in U.S. dollar liquidity and stabilise local fx markets that recently saw sharp upswings (depreciation of the Korean won currency),” the BOK said in a statement.

The bilateral deal is second between the two countries following a $30 billion pact signed during the global financial crisis in late 2008 which expired in February 2010.

By 1336 GMT, the won was quoted at 1253.25 per dollar in the NDF trade, sharply up 2.5% from previous close of 1285.7 on the onshore trade.

“As the bilateral currency swap deal will likely ease dollar liquidity concerns, South Korea’s FX market will be able to take a breather from such a plunge seen today,” one currency dealer said.

On Thursday, the local Kospi stock index plunged 8.4% to a near 11-year low while the won dropped to its weakest since July 2009 as the coronavirus pandemic led to heavy sales of riskier assets worldwide and a scramble in emerging markets for the safety of U.S. dollars.

The deepening economic impact of the pandemic has plunged major stock markets into bear territory and forced investors to liquidate their holdings of commodities, stocks and riskier bonds.

That, and a rush by brokerages to secure dollar funding out of concern about future cash flow, has led to a scramble for dollar financing in Asia’s fourth largest economy.

South Korea also has bilateral currency swap lines with the Australia, Canada, China and Switzerland.

Reporting by Joori Roh, Cynthia Kim; editing by Jason Neely

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