BOK's rate hikes set to appreciate S Korean won: DBS

14:47, March 08, 2011      

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South Korea's local currency will likely rise against the U.S. dollar further as the Bank of Korea (BOK) is expected to raise its key interest rate in March, Southeast Asia's largest lender, DBS Group, said Tuesday.

"The odds for the BOK rate hike to benefit the South Korean won is higher this time around because of the accompanying relatively weaker U.S. monetary policy stance," DBS said in a report.

The BOK is forecast to raise its benchmark 7-day repo rate by 25 basis point to 3.00 percent on March 10, but the U.S. Federal Reserve is widely projected to keep its accommodative monetary policy throughout this year.

DBS expects the BOK to lift its key rate to 3.00 percent at the March rate-setting meeting and forecast four more rate hikes this year by 25 basis point each to 4.00 percent.

"With the Fed still seen carrying through on its second round of asset purchases into June, the South Korean won is projected to trade lower to 1,020 won against the greenback by mid-year," DBS said.

The Fed is expected to buy 600 billion dollars in bonds through June for the second round of so-called quantitative easing. The U. S. central bank ended a 1.7 trillion dollar worth of bond buying program in March 2010.

"The European Central Bank (ECB) sent notice last week that it was preparing to hike rates next month. This essentially cemented expectations for the Fed to lag the world in tightening monetary policy," the report said.

ECB President Jean-Claude Trichet hinted last week that the European central bank may raise its key rate at its April policy meeting, stressing that there is a consensus among policymakers of curbing inflation expectations.

Source: Xinhua
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