S. Korean won drops on central bank's rate cut

SEOUL, Oct. 27 (Yonhap) -- South Korea's currency lost ground against the U.S. dollar Monday as the central bank's unexpected rate cut is feared to increase market liquidity and put downward pressure on the won's value, analysts said.

The local currency was trading at 1,439.45 won to the greenback as of 11:30 a.m.,
down 15.45 won from Friday's close, after rising as high as 1,380 won.
"Despite the central bank's rate cut, the market seemed to be shrugging off its
long-term impact on the real economy and the larger-than-expected reduction
caused jitters that it will increase liquidity and weigh further on the
already-sliding local currency," said Shin Jin-ho, a currency analyst at Woori
Futures.
The won started higher on expectations the government will take additional
measures to stabilize the wobbling financial sector but soon reversed course
after the central bank's monetary policy.
Earlier in the day, the Bank of Korea said that it lowered its key interest rates
by 0.75 percentage point to 4.25 percent in the latest move to jump-start the
slowing economy.
The cut came after the nation's gross domestic product grew 0.6 percent
on-quarter in the third quarter, the slowest in four years.
Fears are lingering that South Korea's economy might slip into a slowdown as its
gross domestic product expanded 0.6 percent on-quarter in the July-September
period, the slowest pace in four years.
Adding to the won's decline is a continued foreign sell-off. Foreigners have
dumped a net 40 trillion won (US$27.8 billion) worth of local shares so far this
year, sparking more demand for dollars as they need to convert the proceeds into
the greenback.
"Such sell-offs are expected to continue until global financial instability comes
to an end, keeping downward pressure on the local currency," Shin said.
The local benchmark KOSPI remained in negative territory as of 11:30 a.m. amid
heavy foreign selling, trading 4.84 percent lower from Friday's close.
kokobj@yna.co.kr
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