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The South Korean government bonds slumped Wednesday as investors moved away from safe-haven buying on expectations of higher consumer inflation for August, which is scheduled to be released on Wednesday 23:00 GMT.
The 10-year bonds yield, which moves inversely to its price, increased 2-1/2 basis points to 1.478 percent and short-term 3-year bonds yield bounced nearly 2 basis points to 1.323 percent.
South Korea’s August consumer price index (CPI) is expected to grow 0.8 percent y/y, as compared to previous 0.7 percent in July. The 0.7 percent y/y growth in July was the lowest since September 2015 and well below the BoK’s 2.5-3.5 percent target range.
In July, the central bank revised down its GDP growth forecast for 2016 to 2.7 percent from 2.8 percent previously and the CPI inflation forecast to 1.1 percent from 1.2 percent previously.
Moreover, it is worth remembering that the Bank of Korea in its August policy meeting left the key policy rate unchanged at its record low of 1.25 percent after cutting 25 basis points in June. Moreover, the central bank governor Lee Ju-yeol said that the central bank would maintain its accommodative policy stance, adding that monetary and fiscal stimulus would boost GDP growth by 0.2 percentage points.
The next central bank policy meeting is scheduled to be held on September 9 and we foresee that if inflation and GDP growth fail to improve over the coming months, such a 25 basis point cut is possible.
Lastly, apart from consumer inflation investors will also remain keen to focus on the upcoming trade, PMIs and GDP figures.
Meanwhile, The Korea Composite Stock Price Index (KOSPI) ended 0.41 percent lower at 2,032.33 points.
