South Korea's Won Little Changed After Central Bank Raises Rate

By Kim Kyoungwha and Judy Chen

Aug. 7 (Bloomberg) -- South Korea's won was little changed after the central bank raised the benchmark interest rate to the highest in almost eight years as it seeks to curb inflation. Bonds fell.

The currency advanced 3.2 percent this quarter, the best performer among the 10 most-active regional currencies outside of Japan, on speculation the nation wants the won to strengthen to lower the cost of imports. Bank of Korea Governor Lee Seong Tae and his six colleagues lifted the seven-day repurchase rate to 5.25 percent from 5 percent.

``The move is taken to mean that they've made it very clear to focus policy on inflation-fighting,'' said Ko Yun Jin, a currency dealer with Kookmin Bank in Seoul. ``The won will come under mild upward pressure in light of easing price pressure.''

The currency traded at 1,015.25 against the dollar as of 10:29 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The won has lost 8.1 percent this year, the second-worst performer among the 10 most-active Asian currencies.

Global funds bought more Korean shares than they sold for the first time in five days. The finance ministry yesterday said it plans to issue $1 billion of foreign-currency stabilization bonds later this year.

``Stability in the international markets is bringing some composure to the local currency market,'' said Kim Sung Soon, a dealer with Industrial Bank of Korea in Seoul. ``This, combined with intervention fears, is lending support to the won.''

The yield on the benchmark five-year note rose 2 basis points to 5.73 percent, according to Korea Exchange. The price of the 5.25 percent security fell 0.07, or 7 won per 10,000 won face amount, to 100.22. A basis point is 0.01 percentage point.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net; Judy Chen in Shanghai at xchen45@bloomberg.net