Expectations of a rare back-to-back rate cut reignited bond market rally Wednesday as Bank of Korea (BOK) governor did not rule out the possibility after an emergency meeting with the government following stock and currency crash over the last two days in panicky response to multiple trade woes.

“If necessary, monetary policy action could be considered. I can’t comment on a rate cut at this stage as we would have to watch the situation a bit longer,” governor Lee Ju-yeol told reporters when asked if a rate cut in the upcoming Aug. 31 meeting could be included in the “all possible policy means” to stabilize the markets.

Bonds were refueled, with deepening in the yield curve flattening. The yield of three-year government bond slipped to 1.153 percent, past the record-low policy rate of 1.25 percent kept until November 2017 from June 2016. Longer-dated yields fell steeper with the 20-year bond retreating 1.2 basis points to 1.242 percent. 

Bond yields move in opposition direction of prices.

The Korean central bank last month lowered the benchmark interest rate for the first time in more than three years to 1.50 percent as the economy faced multiple whammies on the trade front while domestic demand remained lethargic.

Although the rate is a mere quarter percentage point off the historic low of 1.25 percent, the market has renewed bets on aggressive action to push the rate to 2016 levels to aid market and spending sentiment with stock and currency value at 2016 levels as well. After August, the monetary meeting is scheduled for October. “What is fundamentally important is to defend Korea’s credibility,” Lee said.

By Kim Yeon-joo and Choi Mira

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]