Korean Won, Bonds Post Weekly Gains After Moody's Upgrade

  • Moody’s raised rating to Aa2, the third-highest ranking
  • Bank of Korea to cut rate-decision meetings from 2017

The won and South Korea’s bonds posted weekly gains after Moody’s Investors Service raised the nation’s credit rating to the third-highest investment grade.

The yield on three-year sovereign debt held near a two-month low after the Bank of Korea said monetary policy will remain “accommodative” in 2016 and forecast economic growth will improve. The central bank cut borrowing costs twice this year, lowering its benchmark rate to an unprecedented 1.5 percent. A prolonged period of looser monetary policy has led to some side effects and structural reforms are the best way to prevent persistently low growth and inflation, central bank Governor Lee Ju Yeol said late Wednesday. Retaining the improved credit rating is also dependent on reforms, he added.

The won strengthened 1.3 percent from Dec. 18 to close at 1,167.74 a dollar in Seoul. The currency, which gained 0.5 percent on Thursday, posted the biggest weekly advance in two months. South Korea’s financial markets will be closed on Friday for a public holiday.

"The market is quiet ahead of the long weekend and lacks momentum to strongly drive the currency," said Dong-Wook Kim, a currency trader at Kookmin Bank in Seoul. "The won is prone to rise until year-end as some participants rush to sell dollars for settlements, and we are keeping an eye on foreign investor flows in equities."

Overseas investors sold $2.5 billion more Korean shares than they bought so far in December and have been net sellers of the securities in five of the last six months. The won has weakened 5.9 percent versus the dollar this year.

The yield on three-year government bonds declined four basis points this week to 1.66 percent, near a two-month low, Korea Exchange prices show. The 10-year yield fell one basis point from Dec. 18 to 2.10 percent. The BOK said it will in 2017 reduce the number of its rate-decision meetings to eight from 12 a year so that it has more time to consider the impact of monetary policy.

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