Forex - Korea Preview: due 16-Oct - BoK to cut rate back to record low at 1.25%


 23:00 (GMT) 08 Oct

  [Economic Data]

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Korea Preview: due 16-Oct - BoK to cut rate back to record low at 1.25% (0101-PHQD-C01)

We expect Bank of Korea (BoK) to cut its 7-day repo rate by 25 bps to 1.25% during the MPC meeting on 16 October.

Persistent weak inflationary pressure and export woes have provided strong reasons for BoK to trim rate back to its record low at 1.25%. More importantly, the Fed's rate cut in September has given room for BoK to cut rate as well.

South Korea's exports fell by 11.7% y/y in September, which marked the tenth consecutive month of contraction. Meanwhile, Inflation slipped into deflationary territory at -0.4% y/y for the first time. China's slowdown, trade tensions, and the downturn in the semiconductor industry remain major concerns for South Korea. Thus, it is paramount that BoK steps in again since its July's rate cut, to lend further support to the ailing economy.

Given the high and rising household debt in South Korea, BoK is unlikely to ease too aggressively. Hence, we expect BoK to stay pat after the rate cut and turn to fiscal stimulus as the alternative source of economic support in 2020.


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