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The Bank of Korea held the policy rate at 1.5% in October, as expected. The BoK revised its growth forecasts for 2015 and 2016 marginally lower, cutting both 10bp, to 2.7% and 3.2%, respectively.
The reductions were slightly better than our expectation of at least a 20bp downward revision. To us, this suggests the BoK is comfortable with its Q3 growth projection of 1.1% q/q sa, encouraged by recent signs of a stronger revival in domestic demand.
Barclays mentions the following three considerations as more important for the South Korea's economy:
- the growing likelihood of further easing by the BoJ on 30 October, which adds to concern about the strength of the KRW relative to the JPY
- whether exports will fall again in October (released on 1 November)
- the strength of Q3 GDP growth
The focus on engineering a weaker KRW bias will resume, especially if October exports disappoint and if the BoJ eases further.
Barclays notes following areas of minor changes from the BoK's September statement:
- The BoK removed China as a source of heightened market volatility in the October statement.
- The BoK acknowledged that the recovery in domestic demand activities has sustained.
- The central bank claims an improvement in the real estate sectors.
