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Won Gains Even as Bank of Korea Cuts Base Rate

March 12, 2015 at 17:05 by Vladimir Vyun

10,000-wonThe South Korean won rallied today even though the nation’s central bank cut its Base Rate unexpectedly. The most likely reason for the rally was the weakness of the US dollar, though the won gained versus the euro as well.

The Bank of Korea decided to cut its main interest rate by 25 basis points to 1.75 percent at today’s policy meeting. The central bank was a bit pessimistic about the global economy, saying in the statement:

Based on currently available information the Committee considers that, although the trend of a solid economic recovery in the US has been sustained and improvements, albeit modest, have also continued in the euro area, economic growth in emerging market countries including China has slowed. The Committee forecasts that the global economy will sustain its modest recovery going forward, centering around advanced economies such as the US, but judges that the possibility exists of its being affected by changes in the monetary policies of major countries, by the weakening of economic growth in emerging market countries, and by geopolitical risks.

The BoK was somewhat more optimistic about the domestic economy, though saw some negative signs too:

The Committee expects that the domestic economy will show a modest trend of recovery going forward, although falling short of the originally forecast growth path. The period of continuation of the negative output gap will as a result also be longer than had been anticipated.

Korea’s central bank was just one of many central banks of emerging economies that decided to lower its borrowing costs. Surprisingly enough, it did not have a massively adverse impact on the Korean currency.

USD/KRW went down from 1,127.50 to 1,119.70 as of 17:04 GMT today, rising to the high of 1,136.00 intraday. EUR/KRW edged down from 1,189.30 to 1,186.90.

If you have any questions, comments or opinions regarding the South Korean Won, feel free to post them using the commentary form below.

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