Won Gains as Easing Bets Fade After BOK Says Rate Is Supportive

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  • Governor Lee keeps benchmark rate at record-low 1.5 percent
  • Korean exports have contracted every month this year

South Korea’s won rallied, extending its weekly advance, as odds for further monetary policy easing receded after central bank Governor Lee Ju Yeol said the current interest rate is supportive for the economy.

While the economy will gradually improve in the coming months, uncertainties such as slowing growth in China and emerging-market instabilities remain, the central bank said in a statement after keeping the seven-day repurchase rate at a record-low 1.5 percent. “I don’t think Korea’s economy will slow to near 2 percent,” Lee told reporters after the decision. Friday’s move was predicted by 16 of 18 economists surveyed by Bloomberg. Two had forecast a cut to 1.25 percent.

“The BOK’s stance wasn’t dovish as the market expected,” said Seo Hyang Mi, a fixed-income strategist at HI Investment & Securities Co. in Seoul. "A rate cut this year looks difficult now.”

The won strengthened 0.8 percent to close at 1,184.46 a dollar in Seoul, taking its gain for the week to 0.7 percent, data compiled by Bloomberg show. The currency rose to 1,181.54 earlier, its strongest level since Sept. 2. It dropped to 1,208.72 on Tuesday, the weakest level since 2010.

Four rate reductions by the BOK since August 2014 have failed to boost Asia’s fourth-largest economy. The central bank forecast in July that gross domestic product will increase 2.8 percent in 2015, higher than the median estimate for 2.6 percent among economists surveyed by Bloomberg. Friday’s rate decision was unanimous, Lee said.

South Korea’s exports slumped in August by the most since 2009 and have contracted every month this year. “Korea’s exports remain sluggish but domestic economic indicators including consumption are showing improvement,” Lee said.

Government bonds pared earlier declines, with the three-year yield closing little changed at 1.66 percent, one basis points higher than a week ago, Korea Exchange prices show. The 10-year yield was steady 2.24 percent.