MNI PREVIEW: BOK Set To Stand Pat; Eyes Partial US/China Deal

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Korea will likely keep its official rate

unchanged at 1.25% next week as it monitors the impact of previous cuts and

apparent improving trade tensions between the U.S. and China.

     With a partial trade deal between the U.S. and China set to be signed in

the next week or so coming alongside a pick-up in IT-related demand, the BOK has

room to step back from further easing for now at least.

     --EXPORTS IMPROVING

     Korea's exports fell for a 13th straight month in December, down 5.2% on

year, an improvement on the 14.3% decline in November and 14.7% fall in October.

     According to Hidehiko Mukoyama, a senior economist and South Korea watcher

at the Japan Research Institute's Economics Department, the current situation

doesn't warrant a rate cut by the BOK, unless global trade conditions worsen

sharply.

     "Korea's exports will likely continue improving this year and are expected

to rise as early as the January-March period, or for the April-June quarter at

the latest," he told MNI.

     Mukoyama noted that Korea's exports had declined on a value but not volume

basis, largely due to the fall in IT-related goods prices.

     --APRIL ELECTION

     The BOK cut its base rate to 1.25% in October, 2019, matching the

historical low seen between September 2016 to October 2017 and is reluctant to

further lower the benchmark to a fresh all-time low , a person who is familiar

with Korean economy told MNI.

     The central bank is also concerned that any cut in rates ahead of April's

National Assembly elections could be seen by some as interference in the

political process, MNI was told.

     South Korea's 21st legislative election will be held on April 15. All 300

members of the National Assembly will be elected with 253 from

first-past-the-post constituencies and 47 from proportional party lists.

     The vote will be held against a backdrop of a country suffering from weak

global demand for semiconductors and sluggish domestic demand, although there

are early signs that the IT-sector may have hit bottom and demand is expected to

pick up -- albeit slowly.

     South Korea's manufacturing PMI rose to 50.1 in December from 49.4 in

November and the BOK expects GDP to accelerate to 2.4% in 2020 from 2.0% in

2019. Inflation remains subdued and is unlikely to see any upside pressure in

coming months, giving the central bank leeway to keep in accommodative policy

stance.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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