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SOUTH KOREA: BOK on Hold but Only for Now. 

SOUTH KOREA
EM BulletBulletSouth KoreaAPACEmerging Market News
  • The BOK surprised the market by remaining on hold, in the face of the political uncertainty that remains in the country.
  • With one voting member calling for a rate cut, Governor Rhee noted that all six voting members are open to rate cuts in the coming months and that downside potential exists for economic growth.
  • Rhee pointed out that that currency is weaker than necessary and that unsurprisingly the exchange rate volatility has increased due to the political situation, but it is likely to ease.
  • He also confirmed that the BOK has conducted measures to seek to stabilize the currency.
  • Rhee indicated that the BOK is waiting to have an understanding of Trump’s policy and how it will impact that pace of easing for the BOK but stated clearly that the Central Bank is in an easing cycle and that the cycle is to continue for some time.
  • Rhee noted that the potential for rating downgrade by the credit ratings agency is a key risk at present.  
  • He also noted that GDP growth may be +0.2% or lower – potentially giving a heads up prior to the GDP release next week.
  • Governor Rhee also shared concerns for  a potential rise in inflation going forward.
  • The market remains balanced in their view on rates in Korea with 45 bps in cuts priced in for 1 year, and only 11bps of cuts for 3 months.
  • The risk for the market is that the BOK cuts more aggressively than is currently factored in based on the comments from the Governor today.
  • Bonds have rallied today with the 3YR Government bond down in yield by 5bps, though likely this is more to do with the overnight move from the US.
  • The Korean 3YR future is +0.25 higher and the 10YR +.93 higher in price.
  • There is no significant data releases tomorrow in Korea with next week seeing PPI, first 20 days Exports and Imports, Consumer Confidence and GDP. 
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  • The BOK surprised the market by remaining on hold, in the face of the political uncertainty that remains in the country.
  • With one voting member calling for a rate cut, Governor Rhee noted that all six voting members are open to rate cuts in the coming months and that downside potential exists for economic growth.
  • Rhee pointed out that that currency is weaker than necessary and that unsurprisingly the exchange rate volatility has increased due to the political situation, but it is likely to ease.
  • He also confirmed that the BOK has conducted measures to seek to stabilize the currency.
  • Rhee indicated that the BOK is waiting to have an understanding of Trump’s policy and how it will impact that pace of easing for the BOK but stated clearly that the Central Bank is in an easing cycle and that the cycle is to continue for some time.
  • Rhee noted that the potential for rating downgrade by the credit ratings agency is a key risk at present.  
  • He also noted that GDP growth may be +0.2% or lower – potentially giving a heads up prior to the GDP release next week.
  • Governor Rhee also shared concerns for  a potential rise in inflation going forward.
  • The market remains balanced in their view on rates in Korea with 45 bps in cuts priced in for 1 year, and only 11bps of cuts for 3 months.
  • The risk for the market is that the BOK cuts more aggressively than is currently factored in based on the comments from the Governor today.
  • Bonds have rallied today with the 3YR Government bond down in yield by 5bps, though likely this is more to do with the overnight move from the US.
  • The Korean 3YR future is +0.25 higher and the 10YR +.93 higher in price.
  • There is no significant data releases tomorrow in Korea with next week seeing PPI, first 20 days Exports and Imports, Consumer Confidence and GDP.