Korean Won Falls to Two-Month Low After BOK Decision; Bonds Gain

South Korea’s won fell to a two-month low after the central bank left interest rates unchanged and said external uncertainties are downside risks to economic growth. Government bonds rose.

The Bank of Korea kept its seven-day repurchase rate at 2.50 percent in a unanimous decision today, as forecast by all 15 analysts in a Bloomberg survey, after unexpectedly cutting borrowing costs by a quarter of a percentage point in May. Morgan Stanley lowered its growth projection for South Korea to 2.9 percent from 3.3 percent, while the World Bank trimmed its estimate for global expansion to 2.2 percent from 2.4 percent.

The won fell 0.1 percent to 1,134.43 per dollar in Seoul, the lowest level since April 10, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 10 basis points, or 0.10 percentage point, to 10.92 percent.

“The central bank’s assessment of the economic situation hasn’t changed from May, but volatility is increasing in the credit market,” said Lee Jae Hyung, a fixed-income analyst at Tongyang Securities Inc. in Seoul. “The BOK is likely to take a conservative approach for the next few months as any change in interest rates could spur capital outflows amid concern about a possible unwinding of quantitative easing in the U.S.”

Overseas investors sold $1.89 billion more Korean shares than they bought this month through yesterday and pulled further funds from the securities today, exchange data show.

The central bank is monitoring the economic impact of the May rate cut and government stimulus measures, the BOK said today. South Korea announced a 17.3 trillion won ($15.2 billion) supplementary budget in April to spur the economy, which expanded last year at the slowest pace since 2009. South Korea’s low-growth phase may continue with declines in consumption and investment, the Finance Ministry said this week.

The yield on the 2.75 percent sovereign bonds due March 2018 fell two basis points to 3.04 percent, prices from Korea Exchange Inc. show.

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