Market Interest Rate Plunged down

Thanks to the additional cut of call rate by the Bank of Korea, the return rate of the national bond plunged down to 4.97 percent, recording the lowest rate in addition to the lowest record of the return rate of the three year corporation bond. The banks that lowered their loan interests are planning to make additional cut.

The won-dollar exchange rate has fallen to 1270 vs. 1 temporarily and the stock price started surging back. Consequently, the financial market showed the `triple power` where the prices of bonds, won currency, and stock all rose together.

The bonds market closed yesterday with 5.02 percent of the return rate of the three-year national bonds, which is 0.12 percent lower than the previous day. In the early market, the rate once fell down to 4.97 percent but by the sales due to the sudden plunge, the market closed without breaking the 5.0 percent line that is the lowest record on February 2.

However, the one-year national bonds recorded the return rated below the 5 percent (4.94 percent), falling 0.14 percent from the previous day. The return rate of the three-year corporation bonds also closed with 6.42 percent that is 0.09 percent lowered, renewing the lowest record (6.44 percent) set on February 15.

It is analyzed that the serial reductions of the interests are due to the expectation for the additional cuts of the call rate by the Bank of Korea, evaluating that, since the reduction of the facility investment and the slowdown of the export growth are serious than expected, the economic recovery cannot be positively expected without a special measure. In addition, by the serial cuts of the loan interest of the banks, the circulating money rushed into the money market fund (MMF) and the securities of short-term pubic and private bonds. Eventually, the fund operating firms started buying the bonds for a short term profits, increasing the price of bonds and lowering the interest rates.

The foreign exchange market closed with 1283.5 vs. 1 of the won-dollar exchange rate, 4.9 won down from the previous day. The exchange rate once fell to 1278.5 but bounced soon by the intervention of the Korea Development Bank. The composite stock exchange index rose 5.67 points to 555.34 and Kosdaq closed with 69.21 that is 0.29 up from the previous day.

Kim Do-Young nirvana1@donga.com