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In a joint statement released on Wednesday, the Bank of Korea (BOK) and the South Korean Finance Ministry will loosen one of its key foreign exchange rules to encourage banks to supply more dollars in local markets as the coronavirus pandemic causes liquidity crisis, as cited by Reuters.

Key takeaways

The cap on the foreign currency forward positions that local banks can hold will be raised to 50% of their equity capital from 40% currently starting March 19.

For foreign banks, the same ceiling will be raised to 250% from 200%.

The targeted approach to ease the dollar funding squeeze is expected to help address mismatches in dollar liquidity in the local derivative markets.

Separately, the Finance Minister Hong Nam-ki said the government is preparing to roll out a more “comprehensive financial support” package soon to help companies hit by the virus outbreak.

USD/KRW reaction

The Korean won trades on the front foot near 1,235 region, as USD/KRW corrects further from a four-year high of 1,246.70 reached on Tuesday.