Korea: BOK set to turn dovish – Nomura

By FXStreet Young Sun Kwon, Research Analyst at Nomura, suggests that as of today, all 13 economists (including Nomura) surveyed by Bloomberg expect the BOK to stay on hold at 1.50% tomorrow.

Key Quotes

“The Nomura BOK Signal Index – NBSI (Bloomberg ticker: NMEIBSI and NMEIBSIP) – offers the highest probability of a cut (NBSI+: -0.19 for February) since July 2015 (-0.11). The NBSI is drawn from a real-time ordered probit model that estimates the probability of a BOK rate cut, or hike, at each monthly meeting. The higher probability of a rate cut is due to a weaker global manufacturing index, lower stock prices and lower inflation, which more than offset a weaker KRW.

Nomura’s Korea Trade-Weighted Nominal Policy Rate [Bloomberg ticker: NMEIKNPR] – the average of each trading partner countries’ nominal policy rates weighted by their respective market share for Korean exports – stood at 1.46%, lower than the BOK’s 1.50% policy rate.

We believe that the BOK would prefer to wait until financial market volatility, which is uncomfortably high, subsides. However, given deteriorating macro data, we assign a 40% probability to a rate cut tomorrow and a 60% probability to a cut thereafter. As such, we would not be surprised …read more

Source:: FX Street