South Korean Bonds Drop for Second Day as BOK Seen Less Dovish

  • Hurdle for additional rate cut remains high: Credit Agricole
  • Won strengthens for second week as equity inflows surge

South Korea’s government bonds declined for a second day after central bank Governor Lee Ju Yeol said monetary policy is accommodative enough and benefits from further interest-rate cuts may be limited.

The bank’s assessment of the nation’s economy was unchanged from February, Lee said Thursday, after the Bank of Korea kept its seven-day repurchase rate at a record low 1.5 percent for a ninth month. The government is also confident of achieving its 3.1 percent economic growth target this year and doesn’t plan to add to existing fiscal stimulus, Vice Finance Minister Choi Sang Mok said in an interview after Lee’s remarks.

“The hurdle for an additional rate cut remains high," Gary Yau, a Hong Kong-based emerging-market strategist at Credit Agricole SA, said in a report. “We continue to believe that fiscal policy remains the more direct and effective stimulus to support the economy."

The yield on notes maturing December 2018 climbed four basis points on Friday and three basis points this week to 1.55 percent in Seoul, according to Korea Exchange prices. The benchmark 10-year yield increased five basis points to 1.92 percent on Friday and rose three basis points from March 4.

The won strengthened for a second week as foreign funds bought a net $639 million of local equities, taking inflows this month to $1.6 billion. South Korea is becoming more comfortable with capital flows and may loosen restrictions on currency forward positions for banks, Vice Finance Minister Choi said.

The won rose 0.9 percent on Friday and this week to 1,193.07 a dollar in Seoul, according to data compiled by Bloomberg. Its 1.7 percent loss this year is the biggest in Asia.

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