Won Reaches Six-Month High as BOK Holds Rate; Bonds Advance

South Korea’s won touched the strongest level in more than six months as the central bank kept its policy rate at the lowest since 2010 to support economic growth. Government bonds gained.

The Bank of Korea today held its seven-day repurchase rate at 2.5 percent, as predicted by all 15 economists in a Bloomberg News survey, following a quarter percentage-point cut in May. The won appreciated also after Chinese Premier Li Keqiang said Asia’s largest economy can achieve its main economic targets this year. China is South Korea’s biggest export market.

“The central bank will keep a dovish tone for now because it may not have much leeway to cut interest rates from here,” given the risk to capital outflows from emerging markets, said Suresh Kumar Ramanathan, a regional currency strategist at CIMB Investment Bank in Kuala Lumpur. “That will at least support growth, as there are expectations for Korea to ride on the coat tails of U.S. and Chinese economic recoveries.”

The won climbed 0.2 percent to 1,084.91 per dollar in Seoul, according to data compiled by Bloomberg. It earlier reached 1,081.90, the strongest level since Feb. 28. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 25 basis points, or 0.25 percentage point, to 7.45 percent.

Stock Inflows

Global funds bought more local equities than they sold for a 15th straight day, in the longest streak of gains since December 2012, according to stock exchange data. The inflows amounted to $4.67 billion in the last 14 days.

Government reports this month showed South Korean exports jumped 7.7 percent in August from a year earlier, versus a 2.6 percent increase in July. The economy, Asia’s fourth-largest, expanded 2.3 percent in the second quarter, the most in a year.

The won halted a three-day rally yesterday on speculation the government intervened in the market to prevent excessive gains. The authorities will take steps to check currency volatility if “herd behavior” causes drastic movements, the Finance Ministry said in a report to parliament in June.

The yield on South Korea’s 2.75 percent bonds due June 2016 declined two basis points to 2.93 percent, Korea Exchange Inc. prices show, the lowest level since Sept. 3.

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