ANZ tipping surprise Korea rate cut on Friday

SEOUL - While its baseline forecast remains for the Bank of Korea (BOK) to stay its hand this Friday (May 15), ANZ Bank says an unexpected rate cut to 1.50% has become a material risk. “To quantify, we attach the odds of 40% for the event. Previously we would have put a probability of 20% only,” ANZ says.

Recent actions of other central banks in Asia appear to offer a window for the BOK to surprise the market, according to ANZ. It says the central banks that cut interest rates in the past two weeks, namely, the People's Bank of China, the Reserve Bank of Australia, and Bank of Thailand, were also those that lowered interest rates in March, the same month in which the BOK took pre-emptive action.

“That decision was made when the rate cut bet in the market was subdued, similar to the condition now (only one in 17 of the Bloomberg panel expects a rate cut this Friday).

With GDP still expected to grow by 3.1% in 2015, ANZ points out that Korea is not in recession. “Therefore, we do not think the economic profile of Korea calls for entering a zero policy regime, as Japan and Europe do.

“We believe there is a significant chance for the Park Government to unveil a stimulus package comprising a supplementary budget and broad-based monetary policy easing.  The process may embark with a surprising rate cut this Friday.:  www.live.anz.com (ATI).