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SOUTH KOREA: BOK and the Outlook for Rates.

SOUTH KOREA
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  • The BOK’s Governor Rhee said during an interview in Washington at the IMF / World Bank meetings last week that ‘the Bank of Korea will likely revisit its economic growth forecasts next month with risks tilting to the downside.” (source BBG).
  • Rhee also noted that “the exchange rate has become a factor to consider in the BOK’s monetary policy and that the current dollar exchange rate is higher than desirable and increasing at a fast pace.” (source BBG).
  • Equally, South Korean President Yoon was quoted as saying “It’s important to respond promptly to prevent changes in supply chains, oil prices and FX from having a negative impact on (the) local economy.” (source BBG)
  • Recent trading sessions has seen bond yields globally react to US yields and their move higher.
  • Having touched 2.785% in mid-October, the KTB 2yr at 2.952%, is almost 17bps higher.
  • Similarly, the yield on the KTB 10 year has moved higher, increasing to 3.11% from the October lows.
  • Using BBG’s MIPR function, we can see that the market implied rate in six months’ time is 2.87% for monetary policy, a reduction of 38bps from the current base rate of 3.25%.
  • Whist Korean yields’ correlation to US has always been high and is likely to remain so, there is still room for the front end of KTB rates to possibly react to any revisiting to the outlook for Korean growth. 
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  • The BOK’s Governor Rhee said during an interview in Washington at the IMF / World Bank meetings last week that ‘the Bank of Korea will likely revisit its economic growth forecasts next month with risks tilting to the downside.” (source BBG).
  • Rhee also noted that “the exchange rate has become a factor to consider in the BOK’s monetary policy and that the current dollar exchange rate is higher than desirable and increasing at a fast pace.” (source BBG).
  • Equally, South Korean President Yoon was quoted as saying “It’s important to respond promptly to prevent changes in supply chains, oil prices and FX from having a negative impact on (the) local economy.” (source BBG)
  • Recent trading sessions has seen bond yields globally react to US yields and their move higher.
  • Having touched 2.785% in mid-October, the KTB 2yr at 2.952%, is almost 17bps higher.
  • Similarly, the yield on the KTB 10 year has moved higher, increasing to 3.11% from the October lows.
  • Using BBG’s MIPR function, we can see that the market implied rate in six months’ time is 2.87% for monetary policy, a reduction of 38bps from the current base rate of 3.25%.
  • Whist Korean yields’ correlation to US has always been high and is likely to remain so, there is still room for the front end of KTB rates to possibly react to any revisiting to the outlook for Korean growth.