Central Bank of Korea Lifts Interest Rates as Won Recovers

On Thursday, the Central Bank of South Korea increased interest rates as financial risks become more extreme, while won modestly strengthened.

USD/KRW played a stable hike as it jumped 0.33% to 1,168.07, while Korea’s benchmark index Kospi plummeted 0.78% to 3,122.16.

The Bank of Korea elevated its policy rate by 0.75% to 25 basis points as it initiated the rates hike from all the developed countries amid the pandemic.

Since May, Policymakers were hinting at higher rates, but possibilities for the stimulus were impeded by the latest COVID-19 outbreak that forced the country into semi-lockdown.

In Asia, Sri Lanka initially increased its rates last week, alarmed by capital flight and imported inflation.

Meanwhile, most of the global central banks lowered their interest rates as the Delta variant significantly affected the economic recovery.

Economists mentioned that the highly infectious variant slowed down the expected recovery of each state.

US, Europe and Asian governments are rolling out emergency support to lift the declining growth of industries.

Financial risks concern the economy, where house prices spiked by 14.3% year-on-year in July, and Household debt increased by 10% year-on-year in the second-quarter report.

The BOK stated that it would create further economic stimulus depending on the country’s economic growth outlook.

In recent weeks, South Korea’s economy is struggling with high recorded infections as the 7-day average daily cases increase up to 1,800, far enough from the 400 cases last June. The country prolonged its pandemic control measure to curb the recent surge of Coronavirus cases. The positive progress in the vaccination rate gives hope to lighter measures in the following months.

Meanwhile, most Asian currencies strengthened against the US dollar, where the Malaysian ringgit led the gains as it inched up 0.14% to 4.202.

United States Dollar Eases as Risk-On Up

United States Dollar eases as the market risk appetite stayed up ahead of the upcoming Jackson Hole Symposium, while other currencies rallied.

The USD index, a standard measure of the US currency’s value against a basket of rival currencies, edged down to 0.08% to 92.82 points.

Investors look forward to the vital speech of Federal Reserve Chair Jerome Powell at the economic summit. Hints for the possible timeline of Fed’s asset tapering and interest rates hike is expected from the symposium.

Reports also showed that the US Treasury yields reached a 2-week high as the 10-year bond rate soared six basis points to 1.35% from 1.29%. At the same time, US two-year treasury yields edged up to 0.24% from 0.22%.

The Australian Dollar stretched its gains over the greenback as it hiked 0.22% to 0.7273, while New Zealand’s Kiwi inched up 0.35% to 0.6972.

The pound sterling spiked 0.27% to 1.3760 from 1.3730 as Euro jumped to 0.14% to 1.1770.

Japan yen also hiked 0.01% to 109.99 as Thai Baht jumped 0.06% to 32.784.

Sing dollar edged up 0.03% to 1.3531, while the New Taiwan dollar increased 0.06% to 27.927.