BLBG:Korean Won Falls, Bonds Rise as Euro Crisis Deters Interest-Rate Increase
South Korea’s won fell the most in two weeks and bonds rose as the central bank left interest rates unchanged for a sixth month, refraining from boosting borrowing costs at a time when Europe’s debt crisis is hurting exports.
The Bank of Korea kept its benchmark seven-day repurchase rate at 3.25 percent, a decision predicted by all 16 economists surveyed by Bloomberg News before today’s announcement. European Union leaders meet today in Brussels to escalate their response to a crisis that led to bailouts of Greece, Ireland and Portugal.
“The won is moving within a narrow range ahead of the European summit,” said Han Sung Min, a foreign-exchange dealer at Busan Bank in Seoul. “The central bank’s rate decision isn’t affecting markets as it was pretty much expected.”
The won weakened 0.5 percent to 1,131.85 per dollar as of 10:27 a.m. in Seoul, according to data compiled by Bloomberg. That’s the biggest drop since Nov. 24. The Kospi Index of shares retreated 0.7 percent.
A German official said yesterday the government will prevent the temporary European Financial Stability Facility from continuing to operate when the euro area sets up its permanent European Stability Mechanism next year. The statement followed a report in the Financial Times that said officials are negotiating a plan to run the EFSF even after the permanent ESM starts operations. The European Central Bank will probably lower its benchmark rate to 1 percent from 1.25 percent today, a separate Bloomberg News survey showed.
The yield on South Korea’s 3.5 percent bonds due September 2016 declined one basis point, or 0.01 percentage point, to 3.49 percent, according to Korea Exchange Inc. prices. Three-year bond futures rose 0.05 to 104.61, exchange prices show.
To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
