Won surges over 2% after Bank of Korea signals rate hikes to continue
THE South Korean won surged after the nation’s central bank raised its policy rate and indicated that the tightening would continue until inflation is under control.
The won jumped as much as 2 per cent to 1,324.90, marking its biggest advance since Nov 11, when the currency rose nearly 5 per cent. It led the gains in the region, as most emerging-market currencies strengthened against the US dollar after the minutes of the latest Federal Reserve meeting showed support for smaller rate hikes.
While concerns grow over the impact of higher interest rates on the economy and credit markets, Bank of Korea (BOK) governor Rhee Chang-yong indicated that the central bank would stay on its rate-hike path in the near-term.
“The governor being open to hikes, compared to the Fed that is slowing down”, is seen as driving risk appetite, pushing the won higher, said Mingze Wu, a currency trader at StoneX Group in Singapore. Wu expects the currency to stay supported should the Fed resort to a smaller hike of 50 basis points in December.
The won has climbed almost 8 per cent against the US dollar this quarter – the biggest jump among major Asian currencies – amid expectations for softer rate increases in the US, and China’s pivot away from its Covid-Zero policy. That is a dramatic shift from being the worst-performing currency among the same peers last quarter.
During a press briefing that followed BOK’s decision to increase its benchmark rate by 25 basis points to 3.25 per cent, Rhee said there were two members on the board who wanted to keep the door open to rates rising beyond the 3.5 per cent level, a position that suggests rates could keep going up in the future.
Swap markets are currently pricing in a quarter-point rate hike in the next three months. The won traded 1.8 per cent higher at 1,328.25 as at 3.01 pm Seoul time. BLOOMBERG
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