Korean Won Rises on Exports, Inflows; Bonds Jump on Surprise Rate Decision
Sept. 9 (Bloomberg) -- Dariusz Kowalczyk, Hong-Kong based senior economist at Credit Agricole CIB, talks about the outlook for the South Korean won. The currency climbed to its strongest in a month on speculation the nation’s rising exports and an improving economy will spur inflows. The central bank today unexpectedly refrained from raising interest rates to support growth. Kowalczyk also discusses the outlook for the global economy, and the Obama administration's policies. He talks with Linzie Janis on Bloomberg Television's "Global Connection." (Source: Bloomberg)
South Korea’s won climbed to a one- month high on speculation the nation’s rising exports and an improving economy will spur inflows. Bonds rose, pushing three- year yields to the lowest level since January 2009, after the central bank unexpectedly refrained from raising interest rates
The currency erased a 0.4 percent gain after the Bank of Korea’s decision on borrowing costs, before appreciating as much as 0.6 percent. The bank will focus on ensuring price stability and sustaining sound economic growth under an accommodative policy stance, it said in a statement.
“We saw an initial knee-jerk reaction as the market was surprised,” said Bernard Yeung, Hong Kong-based head of foreign-exchange trading at National Australia Bank Ltd. “But the trend is resuming for Korean won appreciation because of its economic fundamentals. I see the won reaching 1,150 per dollar by year-end.”
The won was 0.4 percent stronger at 1,167.70 as of 11:21 a.m. in Seoul, according to data compiled by Bloomberg. It earlier touched 1,166.10, the strongest level since Aug. 10. The economy expanded 7.6 percent in the first half of 2010, the fastest pace in a decade, official figures show.
The central bank is likely to intervene in the foreign- exchange market to restrain won gains that may hurt exports, said Ha Joon Woo, a Seoul-based currency trader at Daegu Bank. Vice Finance Minister Yim Jong Yong said in June policy makers may take steps to limit currency volatility.
‘Undervalued’ Won
The won strengthened 6.8 percent in the past three months, the best performance among Asia’s 10 most-used currencies excluding the yen, as overseas investors pumped more than $3 billion into Korean stocks. The International Monetary Fund in a Sept. 1 report said the won was “undervalued” and the median forecast of analysts surveyed by Bloomberg is for a year-end exchange rate of 1,130 per dollar.
The Bank of Korea today kept its seven-day repurchase rate at 2.25 percent, having in July raised it by a quarter of a percentage point from a record low. Ten of 14 economists surveyed by Bloomberg forecast an increase to 2.5 percent at today’s meeting, while the rest predicted no change.
The yield on the 3.75 percent bond due June 2013 fell 15 basis points to 3.47 percent. A basis point is 0.01 percentage point.
“Bonds fully priced in a 25 basis-point rate hike but the Bank of Korea didn’t hike when it was supposed to,” said Christian Carrillo, head of Asia-Pacific interest-rates strategy at Societe Generale in Tokyo. “But I see three-year bond yields staying around current levels because there is a high probability of a hike in October.”
To contact the reporter on this story: Frances Yoon in Seoul at fyoon2@bloomberg.net.
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