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SOUTH KOREA: Governor Rhee Injects Fresh Uncertainty Into BoK Outlook

SOUTH KOREA
EM BulletBulletSouth KoreaAPACEmerging Market News
  • Despite the political turmoil in Korea of late, financial markets took comfort from a well regarded Central Bank and its ability to maintain markets.
  • At the last BOK meeting (January 16) market expectations were for a cut in interest rates, and the BOK surprised most by remaining on hold.
  • The BOK Governor Rhee in his subsequent press conference was at pains to point out that the BOK is in a rate cutting phase.
  • Since that time there has not been a finalization of the political malaise gripping Korea, and economic data has surprised to the upside.
  • Yet in an interview on Thursday on BBG TV, Governor Rhee pushed the emphasis onto the government saying, “ That is why I’m emphasizing more fiscal stimulus is necessary,” he said when asked by the BBG journalist about mounting speculation for a rate cut at the February 25 meeting.
  • Governor Rhee added a further that a rate cut this month is by no means a done deal.
  • A Central Bank Governor’s reputation is dependent on their ability to carefully and successfully guide the markets expectations as they navigate managing the economy.
  • The market reaction has been for short term implied policy rates to tick up. The 3 month is back to 2.90%, up 4bps, while the 6 month is up to 2.66%, alos +4bps firmer. The 1yr outlook still implied around 50bps worth of further BoK cuts.  
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  • Despite the political turmoil in Korea of late, financial markets took comfort from a well regarded Central Bank and its ability to maintain markets.
  • At the last BOK meeting (January 16) market expectations were for a cut in interest rates, and the BOK surprised most by remaining on hold.
  • The BOK Governor Rhee in his subsequent press conference was at pains to point out that the BOK is in a rate cutting phase.
  • Since that time there has not been a finalization of the political malaise gripping Korea, and economic data has surprised to the upside.
  • Yet in an interview on Thursday on BBG TV, Governor Rhee pushed the emphasis onto the government saying, “ That is why I’m emphasizing more fiscal stimulus is necessary,” he said when asked by the BBG journalist about mounting speculation for a rate cut at the February 25 meeting.
  • Governor Rhee added a further that a rate cut this month is by no means a done deal.
  • A Central Bank Governor’s reputation is dependent on their ability to carefully and successfully guide the markets expectations as they navigate managing the economy.
  • The market reaction has been for short term implied policy rates to tick up. The 3 month is back to 2.90%, up 4bps, while the 6 month is up to 2.66%, alos +4bps firmer. The 1yr outlook still implied around 50bps worth of further BoK cuts.