“Sovereign Rating Outlook of Korea Downgraded by Two Levels”

On the 11th, the Moody’s Investors Service in the United States, one of three renowned credit assessment institutions in the world, downgraded the sovereign rating outlook of Korea by two levels to ‘A3 Negative’ from ‘A3 Positive’.

The Moody’s Investors Service has not downgraded its own sovereign rating. However, as there is a high probability that the sovereign rating will be downgraded within a few months after the time of the outlook having been assessed as Negative, the Korean economy is expected to be adversely affected to a great extent.

The Ministry of Finance and Economy announced that the Moody’s Investors Service had decided to downgrade the sovereign rating outlook of Korea by two levels at the Sovereign Credit Committee in consideration of the deteriorated security environment in Korea including the nuclear issue of the North Korea.

The Moody’s Investors Service explained, “We decided as such not only because there appear the extreme phenomena in the North Korea including the expulsion of nuclear inspectors from the IAEA, its withdrawal from the NPT, and the re-operation of its nuclear facility in Youngbyun but because there is high probability that the sovereign rating of Korea will be lowered if the nuclear issue become deteriorated.”

In addition to this, it also downgraded to all Negatives from Positives the credit rating outlooks of 5 major institutions in Korea related to the Government including the Kookmin Bank, the Export-Import Bank of Korea, the Korea Development Bank, the Industrial Bank of Korea and the Korea deposit Insurance Corporation.

In particular, this downward adjustment gets an attention since it has been changed directly to ‘Negative’ by overriding ‘Stable’, a next lower level of ‘Positive’, from ‘Positive’.

In addition, this abrupt downgrade by two levels is being accepted as a shock since the Moody’s Investors Service had once announced that it would maintain the grade of ‘Positive’ until this April after the delegation for evaluation had visited despite its previous consideration of the downgrade of sovereign rating.

On the other hand, the value of Korean Won against US Dollar was decreased greatly and the bond and stock price also went down slightly amidst the gloomy outlook for the Korean economy after the news of the sovereign rating having been downgraded by the Moody’s Investors Service had been reported. At that day, the exchange rate of Korean Won against US Dollar was appreciated (the value of Korean Won was decreased) by a whopping 16.90 to be closed at 1209.20 Korean Won, a highest level for the past two months since the 13th of December at 1210.00 Korean Won. The width of the daily appreciation of exchange rate has been the largest since the 26th of July last year by 19.5 Korean Won.

In addition, the KOSDAK index in the stock market has continued to record a new lowest in its history for two days by being closed at 42.15, a drop of 11.0 points (0.26%) from the previous day.

The KOPSI was slightly recovered to be closed at 575.98, a drop of 1.27 points from the previous day after having recorded a rapid hike of more than 15 points during the day. That has been the lowest for the past 15 months since the 8th of November, 2001 at 573.04.

In addition, the price of foreign exchange stabilization bond issued by Korea decreased because the risk premium for it showed a slight increase to 126bp (1.26%) from 120bp (1.20%) in New York in the United States by reflecting the increase in the sovereign risk of Korea.