By Kwanwoo Jun

South Korea decided Friday to ease capital-control rules for banks to allow easier access to overseas borrowings and thus improve foreign-exchange liquidity conditions.

The decision, which officials said will take effect before the end of the year, came as Korean financial authorities have sought to stabilize the increasingly volatile foreign-exchange markets, with the won trading at a 15-year low against the U.S. dollar.

The country’s ceiling on forex forward positions will be raised to 75% from 50% of capital for domestic banks, the Finance Ministry said in a joint statement with the central bank and the financial regulator.

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The cap on forex forward positions for foreign banks operating in Korea will also be increased, to 375% from 250% of capital, the statement said.

The raised ceilings would allow more U.S. dollars to flow into the country’s funds market, likely easing the recent downward pressure on the South Korean currency.

“To balance foreign-exchange supply and demand, regulations related to foreign-exchange inflows will be eased in a way that helps stabilize the real economy and foreign-exchange funds market,” the statement said.

The won has fallen 12% against the dollar so far this year, making the South Korean currency one of the worst-performing Asian currencies.

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Adding to the recent downward pressure on the won is the Federal Reserve’s signal of fewer rate cuts in 2025 and the political turmoil over impeached President Yoon Suk Yeol following his botched military-rule attempt in South Korea last week.

Facing market volatility, Korean financial authorities and the state pension fund agreed Thursday to raise their forex swap facility limit to $65 billion from $50 billion and extend the forex swap line by another year until the end of 2025.

Seoul-based NH Futures forex analyst J.H. Wee said in a note Friday that he expects the increased forex swap line and local exporters’ U.S. dollar sales for year-end settlements to help ease the won’s declines.

The U.S. dollar settled Friday at 1,451.40 won in Seoul onshore trading, slightly off the prior session’s level of 1,451.90 won, which was the highest since March 2009.

Write to Kwanwoo Jun at [email protected]

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12-20-24 0355ET