Won Falls as Bonds Still Signal Rate Cut After BOK’s Lee Holds

  • Currency pressured by stock sales, Fed rate-hike comments
  • Samsung drops on report Apple iPhone chip shipments to shrink

South Korea’s won fell for the first time in three days on speculation the central bank will still cut the key interest rate this year, despite keeping it unchanged at a record-low 1.5 percent on Friday.

Bank of Korea Governor Lee Ju Yeol said in a briefing the rate is not “insufficient to support the economy.” But he cautioned against interpreting his comments as a signal for future policy decisions and indicated that the board has lowered the rate in the past to make it even more accommodative. Two-year bond yields are already reflecting investor perceptions for a reduction in borrowing costs, while the Federal Reserve is moving in the opposite direction.

"Current yields still reflect a rate cut,” said Kim Jin Pyung, a Seoul-based fixed-income analyst at Samsung Futures Inc. “But the governor’s comments point to a July cut rather than June. The expected timing has been pushed back."

The won dropped 0.8 percent to 1,171.45 per dollar in Seoul, taking its decline for the week to 1.5 percent, according to prices from local banks compiled by Bloomberg. It fell as much as 0.9 percent earlier.

Fifteen of 18 economists in a Bloomberg survey had expected Friday’s policy decision while three forecast a quarter-point reduction. The three-year bond yield rose two basis points to 1.45 percent after reaching an all-time low of 1.41 percent on Monday, Korea Exchange prices show. The 10-year yield was little changed at 1.77 percent.

Stock sales also weighed on the won, which dropped for a second week. Foreign investors offloaded a net $132 million this week, pushing the Kospi down 0.5 percent. Semiconductor maker Samsung Electronics Co. fell 2.2 percent on Friday after the Nikkei reported shipments of Apple Inc.’s iPhone chips will likely shrink this year.

Fresh comments from U.S. central bank officials on the possibility of a U.S. rate increase this year spurred renewed strength in the dollar, hurting Asian currencies. Boston Fed President Eric Rosengren said borrowing costs should be gradually normalized if economic data continues to improve. The Kansas City Fed’s Esther George said rates are “too low for today’s economic conditions.”

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