South Korea's won falls against dollar on rate cut prospects

By Park Sae-jin Posted : February 16, 2016, 17:16 Updated : February 16, 2016, 17:16

[Aju News DB]


South Korea's won fell to near a 66-month low Tuesday as the prospects for a rate cut grew despite the country’s central bank governor declined to signal any immediate moves.

The won ended local trade down 0.7 per cent at 1,216.6 per dollar after losing as much as 0.9 percent to 1219.4, nearing its low of 1,221.1 on February 3, the weakest since July 2010.

Major foreign banks and offshore funds continued to buy dollars against the won after South Korean President Park Geun-hye pledged to take further "strong" measures against North Korea for its s recent long-range rocket launch and nuclear test.

The won recovered some losses on caution of market intervention by foreign exchange authorities around the 1,220 level to stem further weakness.

The Bank of Korea (BoK) kept its benchmark interest rate at a record low of 1.5 per cent Tuesday, but analysts expect a rate cut as early as next month to boost a fragile economy amid heightened uncertainty over the global economy and financial markets.

BoK governor Lee Ju-yeol admitted the softening economy may warrant policy easing soon,

He said, however, that if the BOK opted to ease monetary policy "the resulting effect of lower interest rates is uncertain due to external unrest".

Still, analysts expect the bank to cut the policy rate at its March 10 meeting as the economy shows no immediate signs of recovery.

The market expectations for BOK rate cuts have increased after the Bank of Japan introduced negative rates last month.

Lee said that Tuesday’s decision to keep rates unchanged was not unanimous, saying one member voted to cut rates.

"The Committee decided to keep rates unchanged today as external conditions are changing quickly and we feel that more time is needed to observe the situation despite the local recovery softening a bit."

Inflation eased in January to provide some room for another cut if needed.

But the governor said “even if inflation is low, I do not feel that is a factor that can be responded to with monetary policy."

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