The won was up 1.1 per cent at 1,134.2 per dollar as of 0201 GMT, after touching a morning high of 1,133.8, the strongest since July 13.
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The decision by the Bank of Korea was widely expected, following a cut of 25 basis points in June.
South Korea’s sovereign bonds shed early gains as forecasts that Bank of Korea (BoK) may not reduce the interest rate from the record low of 1.5 percent. Bank policymakers have slashed borrowing costs three times in the past year, citing sagging exports and the impact of the global economic slowdown.
The latest revision marks the third consecutive cut in its 2015 outlook from the initial 3.4 percent.
South Korea’s economy grew 3.3 percent in 2014.
“The board forecasts that the global economy will maintain its recovery going forward, albeit at a moderate pace, centering around advanced economies, such as the USA, but judges that the possibilities exist of its being affected by heightened worldwide financial market volatility due for example to a shift in the U.S. Federal Reserve’s monetary policy, and by the weakening of economic growth in emerging market countries”, the monetary policy committee said in the statement.
The central bank decided on Thursday to freeze the key rate at a monthly monetary policy meeting presided over by the bank’s governor Lee Ju-yeol.
Especially troubling was a decline in exports, which tumbled 8.3% on year to USD43.51 billion in September, contracting for the ninth straight month.
Fixed income analysts say that there was a retreat in the bond market as foreign investors preferred to position themselves expecting that Bank of Korea to remain on holding interest rates on same level.
“Recent US indicators, such as employment, have pointed to poorer performances than anticipated, while concerns over slowing growth in China continued to mount”.
“Still, there exists a possibility of a USA rate hike before the end of the year”.
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The central bank claims an improvement in the real estate sectors. There are a few signs for optimism as consumption and confidence recover after the slump caused by an outbreak of Middle-East Respiratory Syndrome, while the BOK sees external risks to the economy as high.
