Bank of Korea has done its bit to stoke the currency wars…
Although they insist that it’s not. From BAML’s Jaewoo Lee:
In the press interview, the Governor cited a few main changes since April which led the BoK to cut in May rather than in April: the supplementary budget was finalized; many central banks, including the ECB, turned to easing mode; and the easing can help further with improving sentiments. The Governor, on the other hand, stated that today’s decision was not a response to the yen weakness, contrary to the often-voiced speculation.
The Bank of Korea unexpectedly left interest rates unchanged on Friday as it assesses the effect of its January increase on quickening inflation and slower growth, reports Bloomberg. Governor Kim Choong Soo and his policy board kept the seven-day repurchase rate at 2.75%, in a decision predicted by just three of 12 economists surveyed by Bloomberg. Nine expected a quarter-point boost. Meanwhile, reports the FT, there are signs that capital controls imposed by Seoul in recent months are dampening foreign investors’ appetite for South Korean assets. Foreign investors’ net holdings of South Korean bonds fell for a second consecutive month in January, after a record sell-off in December when the government reimposed a 14% withholding tax on foreigners’ income from sovereign bonds.
South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering gold purchases to diversify its dollar-heavy portfolio, the country’s central bank said, the FT reports. Even a small realignment by the Bank of Korea would have a bullish effect on the gold market. With just 14 tonnes of gold, South Korea holds just 0.2% of its $290bn reserves in gold. The world average is 10% while for the US, Germany and France, it is well over 50%. However, adds Reuters, gold prices fell on Monday as the dollar further strengthened after the Fed’s most explicit signal yet that it would ease monetary policy.
Joint coordinating banks ING and RBS on Tuesday launched a long- delayed $1.56bn debt package for Jurong Aromatics Corp’s Singapore plant, the company and its bankers said, reports Reuters. Some $1.24bn, or 80% of the debt, will be financed or guaranteed by two South Korean export agencies for a term of up to 15.5 years. Export-Import Bank of Korea will provide a direct loan of $340bn and a 100% guarantee for a further $280m. Another $620m tranche will be fully guaranteed by Korea Trade Insurance Corp.
The Bank of Korea cut its benchmark interest rate by a half-point to a record low on Friday, saying the economy is deteriorating faster than expected as domestic demand and exports falter, reports Bloomberg. Korean stocks fell as the bank’s board lowered the seven-day repurchase rate to 2.5%, the fifth reduction since early October. “It’ll be a very bad year,” Governor Lee Seong Tae said, noting the economy almost certainly had a large contraction in the fourth quarter.
The Bank of Korea on Thursday slashed its benchmark interest rate by 100bp to 3.0%, the lowest since the bank began to set a policy rate in 1999, amid growing concerns that the economy may slip into its first recession in a decade next year. The BoK joined other central banks in reducing borrowing costs to fight a global economic slowdown. The bigger than expected rate cut comes as Asia’s fourth-largest economy slows rapidly on waning global demand for its products while inflationary pressure eases on lower oil and other raw material prices. The sharp slump last month has dampened the more optimistic forecasts of 3.2% GDP growth for the South Korean economy next year following a bumper current account surplus in October. Among the more pessimistic, UBS has predicted a 3% contraction in GDP next year.