BOK likely on hold through the rest of 2015

The Bank of Korea kept its benchmark rate steady on 11 September, as widely expected. Alongside the decision, BOK Governor Lee said growth is still likely to hit the Bank's 2.8% target this year. 

His comments that the current benchmark interest rate hasn't reached the "lower limit" fuelled expectations of further rate cuts, but the BoK's subsequent clarification that those comments were "(not) a rate cut signal" was important.

Fundamentally, the signs CPI inflation is basing (August: 0.2%m/m, 0.7%y/y) were encouraging. But inflation remains low and well below the BoK's target bandof 2.5 to 3.5%, which will be revised shortly.

"The BoK's Monetary Policy Committee last lowered the Base Rate by 25bps, from 1.75% to 1.50% in June. This should be the last in the cycle. With inflation basing, the supplementary budget (KRW12trn, 0.8% of GDP) to counter the economic fallout from the MERS outbreak and sharp decline in the KRW REER, it is enough to keep BoK on hold through the rest of 2015", says RBC capital markets. 

The September Business Survey showed continued recovery in confidence. Manufacturing confidence rose from a 3.5 year low of 67 in July to 71, while non- manufacturing confidence also increased from an 11-month low of 66 to 73.