Won Rises to Two-Month High as BOK Keeps Key Rate at Record Low

  • Says stimulus to boost growth by 0.2 percentage point
  • Stock inflows continue, rise above $1 billion this week

South Korea’s won rose to a two-month high after Bank of Korea Governor Lee Ju Yeol kept interest rates at a record low and said the government’s stimulus will boost growth by about 0.2 percentage point.

Policy makers voted unanimously to leave the seven-day repurchase rate at 1.25 percent on Thursday, as expected by all 20 economists surveyed by Bloomberg. While South Korea announced 20 trillion won ($17.5 billion) in extra spending last month, the BOK lowered its 2016 expansion target on Thursday. The won strengthened beyond 1,140 per dollar for the first time since May as concern abated that further easing would spur capital outflows. Ten-year government bonds rose.

The central bank governor said South Korea will see limited impact from Britain’s vote to leave the European Union. Malaysia unexpectedly cut its key rate on Wednesday, citing “moderating growth” in major economies amid risks from the U.K.’s Brexit decision.

“The comment that the decision was reached unanimously boosted sentiment as it pointed to a lesser likelihood of an additional rate cut,” said Kim Dae Hun, a currency trader at Busan Bank in Seoul. “Lee said a limited impact from Brexit was expected, so at least we are not going to see a rate cut due to the post-Brexit impact. That sounded dovish enough for today.”

The won climbed as much as 1 percent to 1,134.85 per dollar, the strongest since May 3, data from local banks compiled by Bloomberg show. It closed up 0.7 percent at 1,138.28 in Seoul. The 10-year bond yield dropped two basis points to 1.37 percent, while the three-year was little changed at 1.21 percent.

Stock Inflows

The BOK cut its growth forecast to 2.7 percent from 2.8 percent, and revised the outlook for consumer-price gains to 1.1 percent from 1.2 percent. Inflation will remain low for the time being and then rise gradually as the effects of low oil prices diminish. Lee expects prices to approach the 2 percent target in the first half of 2017.

Overseas investors added to their holdings of South Korea shares on Thursday, taking the net total so far this week to more than $1 billion. The Kospi stock index rose 0.2 percent on Thursday, advancing for a fourth session.

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