Why Bank of Korea is expected to hold rates steady at 2.5%

As GDP forecast is pegged to hit 0.8%.

According to DBS, the Bank of Korea is expected to hold rates steady at 2.50% when they meet tomorrow. Growth numbers in April/May are still on track to reach the central bank’s GDP forecast of 0.8% (QoQ sa) in 2Q.

Business sentiment has also improved in recent months since the government announced a supplementary budget in April and the BOK cut rates in May.

Here's more from DBS:

We don’t expect the central bank to revise its economic assessment at tomorrow’s meeting. It will be interesting to watch the central bank’s comments on the recent financial market volatility.

The worries over the Fed’s QE tapering have resulted in the rise in long-term KTB yields, depreciation of the KRW and drop in the KOSPI.

While a rapid rise in bond yields bodes ill for growth recovery, the broad KRW liquidity conditions have remained accommodative and short-term money market rates have stayed stable.

The downward correction in the KRW/JPY rate might in fact be welcomed by policymakers at this point.

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