Korea: We now expect a 25bp rate cut in March – Nomura

By FXStreet Young Sun Kwon, Research Analyst at Nomura, notes that the BOK has turned dovish and acknowledged the downside risks to the growth outlook.

Key Quotes

• “The Bank of Korea (BOK) left policy rates unchanged at 1.50%, but one MPC member (Mr. Ha Seung Keun) voted for a 25bp rate cut.

• The BOK announced it would increase the ceiling on special loans, which we view as an acknowledgement of the downside risks to the growth outlook.

• We change our call, moving the timing of our expected 25bp rate cut up to March from June. We continue to expect another rate cut in October 2016.

The decision, with one dissenting vote, was not a surprise, as we assigned a 40% probability to a rate cut. Mr. Ha Sung Keun, a dovish MPC member, voted for a 25bp rate cut against the majority decision to leave rates unchanged. The BOK announced an increase to the ceiling on its special loan program (designed to support small and medium-sized enterprises) by KRW9trn to support economic growth. This strongly suggests that the BOK has acknowledged the downside risks to its seemingly optimistic outlook. BOK Governor Lee mentioned today that, despite weaker growth momentum, the BOK …read more

Source:: FX Street