Bank of Korea hesitates to cut interest rate, but ANZ Bank says two more cuts likely

SEOUL – at its meeting today, the Bank of Korea (BOK) held the  interest rate at 1.50% while highlighting the fact that the trend of declining exports has persisted and improvement of economic sentiment has been inadequate. In addition, the BOK statement singled out China’s financial instability as a risk.

A post-meeting press conference by BOK Governor Lee Ju-yeol indicated his hesitation to a further cut at this stage. While Lee said that external uncertainties remain high, he also thinks the current interest rate level is supportive to the economy. And he said the BOK is prepared to offset the impact of a US interest rate hike.
ANZ Bank says Korea’s deteriorating growth outlook and deflationary risk continue to support its call for a rate cut, now delayed to Q4. “We have revised our GDP forecast from 2.7% to 2.2% for 2015 and from 3.2% to 2.9% for 2016,” ANZ says.
“The inflation outlook should support at least two interest rate cuts going forward. As the BOK did not cut policy rate today, the timing of the first cut is now delayed to Q4.
“There should be another cut in H1 2016 prior to a general improvement of the global economy in H2 next year, leading to an interest rate level to 1.0% as the bottom.”  www.live.anz.com (ATI).