Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
The South Korean bonds trade mixed on Tuesday after Bank of Korea left the key policy rate unchanged for the 10th straight month, at a record low of 1.50 pct. The 10-year bonds yield, which is inversely propositional to bond price rose 0.05 pct to 1.842 pct and 2-year bonds yield dipped 0.53 pct to 1.512 pct by 0545 GMT.
The Bank of Korea latest decision underscores that the Bank of Korea (BoK) proceeded with carefulness to embrace further activity that could worsen high levels of household debt and fuel capital flight. The Bank of Korea April monetary policy pause was consistent with the assessment that recent Industrial production and Business and consumer confidence figures have improved a bit. February Industrial production climbed 3.3 pct, while beating flat reading following the downwardly revised 2.1 pct decline in January (originally -1.8 pct) and the composite consumer sentiment index (CSI) came to 100 in March, compared with 98 for the previous month.
The BoK Governor Lee said that the monetary policy stance still remains accommodative, risks to the economy have increased and uncertainties in global financial markets have eased. He further added that the BoK is managing monetary policy cautiously because of the volatile economic situation. The BoK had also noted that inflation is expected to remain subdued due to lower oil prices and continued downward demand side pressures. The South Korean exports fell less than expected in March, down 8.2% y/y (consensus was for –10.9% y/y) after –12.2% y/y in February. Moreover, March CPI inflation moderated to 1.0% y/y, lower than the consensus of 1.3% y/y) from 1.3% y/y in February.
As the central bank is not easing, the government has little choice but to maintain an expansionary fiscal policy. We think that the government may need to allocate extra budget to support the labour market and to boost youth employment. This follows measures announced in February, including the resumption of a consumption tax discount on car purchases in H116. But in recent months, the government has prioritised economic reforms and corporate restructuring over temporary fiscal or monetary stimulus.
We expect the BOK to cut in May, after holding its benchmark at a record low 1.5 pct for 10-months. This is supported by the increasing speculation in the market that the BOK may cut borrowing costs that are already at a record low, pushing bonds prices further up.
