BLBG:South Korean Won Falls as Euro Crisis Deters Rate Increase; Bonds Decline
South Korea’s won fell the most in two weeks 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. Bonds declined.
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. European Union leaders meet today in Brussels to escalate their response to a crisis that led to bailouts of Greece, Ireland and Portugal.
“Investors are aware that it will difficult for Europe’s leaders to announce policies that will surprise the market,” said Sam Hong, a senior vice-president in charge of currency strategy at Shinhan Bank in Seoul. “The Bank of Korea’s rate decision didn’t affect the market as investors were expecting the rate to be held.”
The won dropped 0.5 percent to 1,131.43 per dollar in Seoul, according to data compiled by Bloomberg. That’s the biggest drop since Nov. 24. The Kospi Index of shares retreated 0.4 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.
Bank of Korea’s Governor Kim Choong Soo said after the rate review meeting that there was no change in the bank’s rate normalization stance and that today’s decision was unanimous.
The yield on South Korea’s 3.5 percent bonds due September 2016 climbed two basis points, or 0.02 percentage point, to 3.52 percent, according to Korea Exchange Inc. prices. Three-year bond futures fell 0.10 to 104.46, exchange prices show.
The central bank governor’s comments signaled that a rate cut isn’t likely in the short term, according to Peter Park, a Seoul-based fixed-income analyst at Woori Investment & Securities Co.
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
