Seoul - The won dropped the most in three weeks after a US jobs report added to speculation the Federal Reserve will raise interest rates, while South Korea may ease monetary policy.
Bank of Korea meets this week and only one of the 16 analysts surveyed by Bloomberg sees a reduction in the benchmark 2 percent rate after two cuts in October and August. The rest expect no change. Short-term government bonds rose as Finance Minister Choi Kyung Hwan told reporters in Seoul Monday that the nation’s economic growth is weak while a recovery is still taking place.
“Positive US jobs data increase the burden for the BOK to lower interest rates,” said Son Eun Jeong, a Seoul-based currency analyst at Woori Futures Company. “The won will have more downward pressure as speculation for a stronger dollar is intact.”
The won fell 1.2 percent to 1,112.19 against the greenback in Seoul, data compiled by Bloomberg show, the biggest drop since February 12. The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, climbed earlier to the highest level since its 2004 inception.
The three-year government bond yield dropped two basis points to a record 1.93 percent, Korea Exchange prices show. It was below the central bank’s benchmark rate for a fifth day. The yield on 10-year notes rose five basis points, or 0.05 percentage point, to 2.37 percent. That’s the highest level since February 25.
Domestic demand isn’t strong and export growth is weaker than previously expected, Choi said. He said last month that changing labour, finance and education policies to ensure long-term growth is more important than focusing on rates.
Bond auction
“The finance minister’s stance seems to have changed to supporting stimulus measures,” said Park Dongjin, a Seoul-based fixed-income analyst at Samsung Futures. “His words fuelled expectations for a rate cut and led short-term bond yields lower.”
The Finance Ministry sold 1.92 trillion won ($1.7 billion) of five-year bonds on Monday at 2.075 percent, according to a statement on the government’s website. The central bank also sold 1.2 trillion won of one-year monetary stabilisation notes, the BOK said on its website.
The central bank is considering boosting the cap on lending to small companies to bolster economic expansion, an official from the monetary authority said on Monday, declining to be named because the matter isn’t public yet. A plan to extend the 15 trillion won cap for company loans needs approval from the BOK’s monetary policy committee, the official said.
US companies took on 295 000 workers in February, more than the 235 000 forecast and the 239 000 for the previous month, Friday’s jobs report showed.
Bloomberg