BoK waits to see if Korea's recovery sustains by itself

After the MERS shock, Bank of Korea's Governor Lee Ju Yeol's believes that Q3 pick up is consistent with the domestic demand, which is returning to its normal path. An important role is played by the bank's more neutral tone in November meeting, in reducing the potential volatality arising from US Fed's December rate hike.

Bank of Korea stayed on hold in November, as predicted by Bloomberg's survey. This was a unanimous decision, and statements after the meeting and the Governor's replies to the questions were neutral, like the last meeting.

The central bank remains cautious of the of weak external demand's continuing trend, especially in China, albeit hope is expredded that US' improvement will offset China's weakness. Infact, as he expressed confidence ahead of December FOMC meeting, he gave clues about monetary accomodation.

The governor opined that structural reforms are needed to combat the slowdown in potential growth, and accomodative monetary policy is required to compliment these reforms" hand-in- hand". He said, both the potential growth and inflation are under review.

"We believe the bank will announce any revisions at (or shortly after) the December MPC meeting. We expect the BoK to recentre lower and widen its inflation target range to 1-3% from 2.5-3.5%, with effect from 2016", says Barclays in a research note.