Exchange, interest rates soar in S. Korea amid US consumer price fears

Posted on : 2022-04-12 17:24 KST Modified on : 2022-04-12 17:24 KST
The interest rate for treasury bonds with three-year maturity finished at 3.186% per annum — the highest in almost a decade
Monitors inside the dealing room of KEB Hana Bank in Seoul’s Jung District display the KOSPI index and dollar-won exchange rate on April 11. (Yonhap News)
Monitors inside the dealing room of KEB Hana Bank in Seoul’s Jung District display the KOSPI index and dollar-won exchange rate on April 11. (Yonhap News)

Exchange rates and interest rates are soaring once again amid fears over prices.

On the Seoul foreign exchange market, the won-to-US dollar exchange rate jumped by 8 won Tuesday to finish the day at 1,233.1 — signaling a steep drop in the won’s value. It marked the first time since March 16 that the exchange rate rose above 1,230 won to the dollar.

US national bond interest rates and the value of the dollar rose amid speculation that US consumer prices for March — scheduled for announcement on Tuesday — would soar higher, bolstering intensive retrenchment measures by the Federal Reserve.

Institutions in the US are predicting that the consumer inflation rate for March will reach 8.4% compared with a year earlier, surpassing the 7.9% recorded in February.

US national bond interest rates continued to rise in Asian markets on Tuesday. The US dollar index, which indicates the value of the dollar compared with the euro and five other major currencies, briefly crossed the resistance line of 100 on April 8, reaching its highest level in roughly two years.

Amid an ongoing trend of net selling of domestic stock by foreign investors, tension has been rising in the foreign exchange market after last month showed an additional steep drop in their net bond investment (purchasing, sale, and redemption at maturity).

Another variable is the fact that this week sees the payment of dividends by Samsung Electronics and many other corporations that settled accounts in December. This results in higher demand as foreign stockholders convert their won-denominated funds to dollars to transfer to their home country.

Tuesday also saw an across-the-board rise in national bond interest rates — indicating a decline in the bonds’ prices. Three-year bond interest rates were at their highest level in nine years and nine months.

On the Seoul bond market, the interest rate for treasury bonds with three-year maturity finished at 3.186% per annum, a rise of a full 0.199 percentage points. This was the highest level since July 11, 2012, when it reached 3.19%.

The interest rate for 10-year bonds was 3.305% at the end of trading, the highest level since the 3.315% recorded on June 16, 2014.

Analysts said the rise in interest rates has been influenced by jitters over a scheduled monetary policy meeting by the Monetary Policy Board on Thursday. With South Korea’s consumer inflation rate surpassing 4%, some have been predicting the board may pursue a surprise increase in the benchmark interest rate.

Interest rates for financial bonds and corporate bonds also rose with the increase in the national bond interest rates, which serve as a benchmark for market interest rates. This could end up translating into a bigger interest burden for individual families and businesses.

By Han Gwang-deok, finance correspondent

Please direct questions or comments to [english@hani.co.kr]

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