BoK unlikely to implement additional easing in H2

Korea's weak Q2 GDP rekindles hope for further BoK rate cuts. However, the BoK is unlikely to implement additional easing in H2 this year. First, Q2 GDP data shows that weaker growth was driven by MERS concerns while a few key growth drivers were strong. 

The BoK would be on hold even if it were to lower the GDP forecast again in October due to weaker-than-expected Q3 growth, as long as the disappointing GDP reflects lingering impacts from MERS.

They have finally unveiled comprehensive measures for household debt management requested by the BoK along with the June rate cut. The recent rise in the USD/KRW exchange rates would raise concern on capital outflow, which will make it difficult for the BoK to cut rates in H2 as the US Fed is expected to start the rate-hike cycle. 

"The BoK may consider further easing in 2016 only if growth disappoints throughout H2 2015", says Societe Generale.

Seasonally-adjusted qoq growth was 0.3%, lower than the flash estimate of 0.4% that was given by Governor Lee at the July MPC meeting. Weaker-than-expected GDP appears to have rekindled the hope for further BoK rate cuts, as it raises the prospect of yet another downgrade in GDP forecasts in October. 

"The BoK will hold the policy rate unchanged at 1.50% in H2 2015 and also throughout 2016", added Societe Generale.