South Korean stocks fall after central bank rate hike; others flat ahead of Powell speech

  • Investors are also awaiting Federal Reserve chair Jerome Powell's speech at the Jackson Hole symposium for clues over any tapering of stimulus measures
26 Aug, 2021

South Korean stocks fell on Thursday after the Bank of Korea (BOK) raised policy rates, making it the first major Asian central bank to move away from pandemic-era monetary easing.

Most other equity markets in the region were flat or lower, as investors braced for a more hawkish stance from central banks around the world following the BOK's move to raise interest rates.

Investors are also awaiting Federal Reserve chair Jerome Powell's speech at the Jackson Hole symposium for clues over any tapering of stimulus measures.

The Philippine peso and the South Korean won weakened while other regional currencies were subdued, even as the dollar held near a one-week low.

"PHP simply reversing the sharp appreciation move the other day as market positions ahead of the much awaited Jackson Hole Symposium," said Nicholas Mapa, a senior economist at ING.

"It had rallied sharply previously as foreign players bought up local shares."

South Korea's stock benchmark snapped a three-day rally, and the won weakened 0.5% against the dollar.

The Bank of Korea raised its policy rate for the first time in almost three years, even as the country reported the highest daily count of COVID-19 deaths for 2021.

This raised concerns over further rate hikes from the BOK, and of other central banks following suit, even as the COVID-19 caseload in the region has surged over the past few weeks.

"There is a good chance for the next rate hike to come before the incumbent governor leaves office in March 2022, " analysts at DBS said in a note.

However, they said policymakers will adopt a gradual and calibrated approach toward interest rate normalisation, taking into account the uncertainties on growth outlook in the next 6-18 months and slowdown risk in China.

In Indonesia, the stock benchmark fell 1%, after the country said its budget deficit was 2.04% of the GDP between January and July this year.

In Malaysia, the stock benchmark extended gains to a fifth session, and the ringgit was at its strongest in over a month.

Analysts at Maybank attributed this to uncertainties over domestic politics finally fading, as new prime minister Ismail Sabri Yaakob took charge last Saturday after the previous government collapsed due to infighting.

Read Comments