Won Rises to Three-Month High as Rate Held, Fed Bets Diminish

  • Central bank cuts 2015 GDP forecast to 2.7% from 2.8%
  • BOK holds rate as predicted by 15 of 17 economists surveyed

The won rose to a three-month high after the Bank of Korea refrained from cutting interest rates and as emerging-market assets extended a rally on receding bets for higher U.S. borrowing costs this year.

The central bank kept its benchmark rate at a record-low 1.5 percent and reduced its 2015 growth forecast for Asia’s fourth-largest economy to 2.7 percent from a July prediction of 2.8 percent. Governor Lee Ju Yeol said on Thursday that uncertainty is high over the Federal Reserve’s timing, with futures showing a 27 percent chance of a move in December. South Korea’s Kospi index of shares rose by the most in a month and government bonds added to early gains.

The won appreciated 1.5 percent, the most since November 2011, to close at 1,130.30 a dollar in Seoul, data compiled by Bloomberg show. The currency reached 1,130.01, the highest since July 13. Asian currencies are still weaker this year as investors anticipated the U.S. would tighten policy, reducing the allure of regional assets.

"We saw some dollar-selling after the BOK’s rate decision was announced," said Kim Dae Hun, a foreign-exchange trader at Busan Bank in Seoul.  "Receding bets for the Fed’s rate increase are boosting appetite for riskier assets, including Korean and Chinese stocks."

‘Too Optimistic’

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, fell by the most in almost two months Wednesday after data showed U.S. retail sales for September increased less than forecast.

The Bank of Korea lowered its economic growth forecast for next year to 3.2 percent from 3.3 percent. There are uncertainties about the nation’s growth due to external conditions, while the economy will continue its recovery on domestic demand, according to the central bank’s statement on Thursday. The rate decision was predicted by 15 of 17 economists surveyed by Bloomberg and two were expecting a cut.

"The BOK’s economic forecasts look a bit too optimistic," said Seo Hyang Mi, a fixed-income strategist at HI Investment & Securities Co. in Seoul. "At the same time, some investors seem to assess Governor Lee’s words as being less hawkish than they thought as he stressed the uncertainties."

The Kospi index rose 1.2 percent. The 10-year government bond yield fell six basis points to 2.07 percent, the biggest drop in two weeks, Korea Exchange prices show. The three-year yield declined three basis points to 1.63 percent.

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