South Korea’s won rose to a 17-month high, while three-year bonds fell after the central bank kept borrowing costs unchanged. Automakers’ shares fell on concern a stronger currency may hurt profit, dragging the Kospi index to its biggest weekly drop since November.
The Bank of Korea left its seven-day repurchase rate at 2.75 percent today in a decision predicted by all but one of 14 analysts surveyed by Bloomberg. One had forecast a 25 basis point cut, after similar moves at reviews in July and October. Governor Kim Choong Soo said he will closely monitor the movements of the won, the best performer of the past year among 16 major currencies tracked by Bloomberg.
“The pace of the won’s gain, which could weigh on exporters, appears to be somewhat rapid,” said Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $31 billion. “While consensus was no change, there were some last-minute hopes for an interest-rate cut and today’s decision gives some disappointment.”
The won gained 0.5 percent at 1,054.69 at the 3 p.m. close in Seoul, the highest since Aug. 2, 2011, according to data compiled by Bloomberg. The yield on the nation’s 2.75 percent bonds due 2015 climbed four basis points, or 0.04 percentage point, to 2.75 percent, according to Korea Exchange prices. It fell to 2.70 percent yesterday, the lowest for a benchmark three-year note in data going back to 2000.
Governor Kim said today that the central bank’s role is to control volatility in the currency through “smoothing” operations. Finance Minister Bahk Jae Wan said last week he was concerned about herd behavior in the foreign-exchange market and may introduce measures to curb the won’s volatility.
“There are some signs the Korean and the global economies may have bottomed, reducing the need for an interest-rate cut,” said Kong Dong Rak, fixed-income analyst at Hanwha Investment & Securities Co. in Seoul. “The Bank of Korea has already cut rates last year to help the economy and too many rate reductions could weaken the impact of a cut.”
The Kospi index retreated 0.5 percent to 1,996.67, taking its slide this week to 0.8 percent. Hyundai Motor Co., South Korea’s biggest carmaker, dropped 1.7 percent on concern the stronger won may cut the value of exporters’ overseas sales when converted back to the local currency.
Kia Motors Corp., South Korea’s second largest automaker, slipped 2.2 percent, while Hyundai Mobis Co., which makes automotive parts, retreated 3 percent.
The Kospi trades at 9.2 times estimated profit, versus the five-year average of 10.9, making the nation’s stocks the cheapest in Asia after Pakistan, according to data compiled by Bloomberg.
Daewoo Securities Co. led brokerages lower, falling by 4 percent. Woori Investment & Securities Co. slipped 4.1 percent.