Jan 15, 2015 1:46 AM ET
South Korea’s government bonds extended declines and the won pared losses after the central bank unanimously decided to keep borrowing costs at a record low and said monetary policy is supportive of growth.
The Bank of Korea held its seven-day repurchase rate at 2 percent for a third month, following two reductions last year. Today’s decision was predicted by 13 of 17 economists surveyed by Bloomberg, with four expecting a cut to 1.75 percent. Governor Lee Ju Yeol said the level is “not insufficient to support growth,” and lower oil prices are good for the economy. The authority cut its 2015 growth and inflation forecasts.
The yield on sovereign notes due December 2017 rose seven basis points, or 0.07 percentage point, to close at 2.05 percent in Seoul, Korea Exchange prices show. It climbed as much as eight basis points, the biggest jump for a benchmark three-year note since at least November 2013. The five- and 10-year yields advanced eight basis points each to 2.17 percent and 2.45 percent, respectively.
“The governor’s comments were more hawkish than the market expected,” said Moon Hong Cheol, a Seoul-based fixed-income analyst at Dongbu Securities Co. “The rate decision was unanimous and Lee sounded rather optimistic about the economic recovery going forward.”
Yields dropped to record lows this week after President Park Geun Hye said the government will discuss rates with relevant authorities as it seeks to revive the economy.
The won fell 0.1 percent to 1,083.24 a dollar, after earlier declining as much as 0.5 percent to 1,087.29, prices compiled by Bloomberg show.
Gross domestic product growth is expected to ease to 3.4 percent, compared with an earlier projection of 3.9 percent, Lee said after the rate decision. Inflation will slow to 1.9 percent, from a previous estimate of 2.4 percent, he said.
The governor said that with low price gains linked to supply factors such as the plunge in oil, it isn’t desirable to manage monetary policy just to match inflation goals. A zero interest policy rate is unlikely, he said.
original source: http://www.bloomberg.com/news/2015-01-15/south-korea-s-government-bonds-decline-before-rate-decision.html