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Won Gains for Second Day as BOK Chief Signals No Rate Cut Needed

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Feb. 20 (Bloomberg) -- The won rose for a second day as South Korea’s central bank chief said an improved global outlook boosts the odds of 2013 economic growth exceeding forecasts, signaling further monetary easing isn’t needed for now.

The currency advanced and government bonds fell as overseas funds bought $76 million more local shares than they sold yesterday, taking inflows this month to $636 million, exchange data show. Bank of Korea Governor Kim Choong Soo said in an interview yesterday Asia’s fourth-largest economy is likely to grow 2.8 percent and liquidity is “abundant.” South Korea must control currency volatility and moves arising from speculative investment, he said at a meeting in Seoul today.

“Foreign equity inflows are supporting the won,” said Sun Sung In, analyst at Shinhan Investment Corp. in Seoul. “Still, officials including Governor Kim have warned about volatility and that will likely limit further gains.”

The won climbed 0.3 percent to close at 1,078.30 against the dollar in Seoul, according to data compiled by Bloomberg. It gained 1.6 percent last week, the biggest five-day advance since the period ended Dec. 2, 2011. The Kospi index of shares jumped 2 percent, to close at the highest level since Jan. 2.

One-month implied volatility for the won, a measure of expected moves in the exchange rate used to price options, fell 24 basis points, or 0.24 percentage point, to 6.83 percent, data compiled by Bloomberg show.

‘Pre-emptively, Effectively’

Governor Kim said today the exchange rate must reflect market fundamentals. South Korea’s incoming President Park Geun Hye said today currency stability is important to protect South Korean companies, according to e-mailed statement from her spokesman Park Sun Kyoo. The nation will “pre-emptively, effectively” respond to the foreign-currency risk, she said.

The yield on South Korea’s 2.75 percent notes due 2017 rose one basis point to 2.82 percent, Korea Exchange Inc. prices show.

The central bank kept the benchmark seven-day repurchase rate at 2.75 percent on Feb. 14 after cuts of 25 basis points each in July and October. For a second month, the decision wasn’t unanimous. In January, BOK board member Ha Sung Keun called for a rate cut to curb excessive appreciation of the won and support the weak economy.

South Korea’s external debt maturing in one year or less dropped to $126.7 billion at the end of last year from $132.6 billion at the end of the third quarter, the Bank of Korea said in a statement today.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net