The Bank of Korea is likely to continue with its pro-growth stance given mounting risks of disinflation/deflation, supportive of local financial markets, noted Scotiabank in a research report. South Korean consumer price inflation decelerated to a 12-month low of 0.8 percent year-on-year in January and is expected to fall into deflationary territory on the base effect in the coming months.
“We also expect South Korea to benefit from China’s future economic rebound”, said Scotiabank.
Chinese outstanding total social financing and M2 money supply rose at a more rapid rate in January 2019, indicating an economic rebound will likely gain momentum in late second quarter of three quarter this year especially if China’s medium-and long-term loans keep rising steadily. Moreover, rebounding geopolitical situation on the Peninsula might strengthen the Korean won as well.
“We maintain our short USD/KRW position targeting 1,100”, added Scotiabank.
