Won Jumps Most in Five Weeks Amid Stock Inflows as BOK Rate Held

  • Rate decision was predicted by 11 of 18 economists in survey
  • Government bonds retreat as stock inflows biggest since April

The won snapped a two-day drop to post its biggest advance in almost five weeks as stock market inflows surged after South Korea’s central bank held benchmark borrowing costs at a record low.

The Kospi index rose to this highest level this year as global funds returned to the market to buy a net $518 million of local shares, the most since April 22. That helped pare the 2016 outflow from the nation’s equities and debt to $1 billion. The Bank of Korea’s decision to keep the policy rate at 1.5 percent was predicted by 11 of 18 analysts in a Bloomberg survey, with the rest expecting a cut to 1.25 percent. Goldman Sachs Group Inc. predicts a reduction in April and HSBC Holdings Plc some time in the second quarter.

“The main constraint on further monetary easing has been concern about financial instability,” Krystal Tan, an economist in Singapore at Capital Economics, wrote in a research note. “The won has been the region’s worst-performing currency in 2016 so far and the BOK appears wary of exacerbating capital outflows.”

The won jumped 1.1 percent, the most since Feb. 4, to close at 1,203.41 a dollar in Seoul, according to data compiled by Bloomberg. It pared this year’s loss to 2.6 percent.

BOK Governor Lee Ju Yeol indicated that further cuts might have limited benefit, saying the central bank’s assessment of the economy was unchanged from last month and that monetary policy was already accommodative. Board member Ha Sung Keun dissented for a second straight month, once again calling for a 25 basis point cut.

The currency advanced even as North Korea threatened “special" military steps against South Korea hours after firing short-range ballistic missiles into the sea off its eastern coast early Thursday, raising tensions amid the Kim Jong Un regime’s claim it can now arm rockets with nuclear warheads.

Government bonds fell for the first time this week, with the three-year yield climbing four basis points to 1.51 percent. The yield on notes due December 2025 increased two basis points to 1.87 percent.

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