South Korea's won turned firmer as the central bank did not provide clear signs of further policy easing after it cut rates on Wednesday, while emerging Asian currencies mostly weakened on worries about a slowing global economy. The Bank of Korea's monetary policy committee (MPC) slashed its base rate by 25 basis points to 2.00 percent, the lowest since mid-2010, as expected.
After the decision, the won fell as much as 0.4 percent to 1,069.1 per dollar. Three-year treasury bond futures also rose by up to 0.18 points. The won reversed its depreciation on stop-loss dollar selling as some economists saw a slim chance of more rate cuts ahead. The futures contract also pared gains.
"Interestingly, at the last paragraph of its MPC about future monetary policy, they added that they will 'pay greater attention to financial stability'," said Frances Cheung, head of Asian rates strategy at Credit Agricole CIB in Hong Kong. Financial stability in the current situation indicates the risk of "too low" interest rates, she said. "If they decide to pay more attention to it, it means they may be getting reluctant to further ease. I prefer to sell USD/KRW at the current level," added Cheung.
Bank of Korea Governor Lee Ju-yeol said a base rate of 2.00 percent was low enough to support growth. The central bank, however, lowered inflation and growth targets. That prompted other economists to expect further easing. "It's better to open the door for one more cut, probably early next year, given slower growth in Europe and China, as well as weak inflationary pressure," said Shin Dong-su, a fixed-income analyst at NH Investment & Securities in Seoul.
Shin doubted if such expectations would put further pressure on the won. "I don't think a further rate cut impact on the won would be big. It is hard to expect European investors to exit, given yield differences between Europe and Korea," Shin said. Malaysia's ringgit eased as the dollar rose against a basket of major currencies amid worries about a sluggish European economy. Investors were awaiting September consumer inflation data due later in the day. In August, Malaysia's consumer price index rose 3.3 percent from a year earlier, marginally above market expectations.
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