FX, interest rates rise sharply due to high oil price

Concerns over inflation due to the increase in oil prices drove the foreign exchange and interest rates to rise sharply on September 14.

From the morning, institutional investors turned to place sell orders for 3-year treasury bonds, dropping the interest rate to 7.85%. This is a drop of 0.09% of a point since September 9. However, the interest rate of 2-year currency stabilization bonds rose by 0.12% to 7.75%.

On the other hand, at the FX market, the value of the won sharply dropped to end at 1115.10, a rise of 6.5 won from September 9.

An official of the Bank of Korea's bond market team asserted that institutional investors¡¯ prediction that the increase in oil prices would entail inflation has caused the prices of long-term bonds to fall sharply.

As there were no buying orders, the volume traded was less than 70% of the daily average.

An official of Hanwha Securities' bond team asserted that the appropriate interest rate for 3-year treasury bonds was between 7.9% and 8.0%.

The official also stated that freezing the call rate last week despite market pressure would further push up interest rates.

At the foreign exchange market, foreign institutional investors converted won into dollars due to looming insecurity in the domestic market, resulting in a further drop in the value of the won.

Lee Na-Yeon larosa@donga.com