USD/KRW: Won falls after surprise Bank of Korea 25 bps cut

The South Korean Won retreated against the US Dollar and South Korean 10-year Treasury yield fell to lowest level since March 2022, after the Bank of Korea cut interest rates for a second straight policy meeting in November, confounding market expectations of a pause.

The Bank of Korea lowered its base rate by 25 basis points to 3.0% at its November meeting, which brought borrowing costs to lows not seen since October 2022.

The rate decision came amid a continuing slowdown in inflation, easing household debt and sluggish economic output.

As a result of exchange rate fluctuations and the impact of decreasing oil prices, the central bank revised down its inflation forecast for this year and for 2025, as follows:

– to 2.3% in 2024 from 2.5% projected previously;
– to 1.9% in 2025 from 2.1% projected previously.

Annual core inflation forecast was maintained at 2.2% for 2024 and at 1.9% for 2025.

In regard to GDP growth, the South Korean economy is forecast to expand 2.2% this year and 1.9% in 2025.

“The central bank expressed its will to boost the economy with the surprise cut, which should be welcomed as there had not been any economic stimulus policy in Korea, unlike in the United States, Europe and China,” Lee Kyoung-min, analyst at Daishin Securities, was quoted as saying by Reuters.

The South Korean Won was 0.58% weaker on the day against the US Dollar, with the USD/KRW currency pair last trading at 1,396.64.

The Won’s losses seemed limited as South Korea’s foreign exchange authorities likely intervened, selling US dollars.

The yield on South Korea’s 10-year government bonds last stood at 2.791%, having dropped to 2.786% earlier on Thursday.