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South Korean Bonds Fall as BOK Leaves Rate Unchanged; Won Drops

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March 14 (Bloomberg) -- South Korea’s three-year government bond fell, prompting the yield to jump the most in a week, after the central bank left interest rates unchanged. The won dropped for a sixth day, its longest losing streak in 10 months.

The Bank of Korea kept its benchmark seven-day repurchase rate at 2.75 percent for a fifth month today in a decision predicted by 12 of 16 analysts surveyed by Bloomberg. Four forecast a 25 basis point cut, after similar moves at reviews in July and October. Incoming Finance Minister Hyun Oh Seok said the economy may not achieve the 3 percent growth rate forecast by the government, the Associated Press reported yesterday.

“Some investors offloaded their bond holdings on disappointment after the BOK’s rate decision,” said Kong Dong Rak, a strategist at Hanwha Securities Co. in Seoul. “But we will have to wait and see what indication the central bank will give in relation to the incoming finance minister’s view on the economy.”

The yield on the 2.75 percent bonds due December, 2015 rose three basis points to 2.63 percent at 10:20 a.m. in Seoul, according to prices from Korea Exchange Inc. The Kospi index of shares fell 0.6 percent.

President Park Geun Hye, who took office on Feb. 25, is grappling with North Korean tensions, yen weakness that aids export rivals in Japan, and a drag on consumption from elevated household debt. Hyun told lawmakers yesterday that “short-term policy support” is needed for the economy.

The won fell 0.5 percent to 1,102.44 per dollar in Seoul, according to data compiled by Bloomberg. The run of losses is the longest since May 16, 2012. One-month implied volatility for the won, a measure of expected moves in the exchange rate used to price options, rose 42 basis points, or 0.42 percentage point, to 8.48 percent.

Hyun also told lawmakers yesterday that the country needs to be “cautious” about introducing any taxes on foreign-exchange transactions as imposing levies on trading may hamper capital inflows.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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