10 Apr 2014
Asia EM Express: Bank of Korea keeps rates unchanged, hikes growth forecast
FXStreet (Łódź) - Korea's central bank policymakers unanimously decided on Thursday to keep rates unchanged at 2.5% for the 11th running month, as expected. The BoK also rose its 2014 growth outlook from 3.8% to 4% and lowered the inflation forecast from 2.3% to 2.1%.
It was the first monetary policy meeting chaired by new governor Lee Ju-yeol. During the press conference following the interest rate decision he said that a debate on a potential rate hike should be initiated if the negative output gap closes and upside risks to inflation mount, threatening price stability in the medium term.
“Should the economy keep improving and South Korea’s output gap narrow on top of inflation rising on demand-led pressure, then we will be able to discuss moving interest rates pre-emptively,” Lee Ju-yeol said.
Tim Condon, Head of Research-Asia at ING, comments: “Pending a positive shock forecast of an export-led recovery will be frustrated and we consider Korea’s slow growth-low inflation trend your friend. Our forecast for 2014 GDP growth is 2.8% and for inflation it’s 1.6% (consensus 3.6% and 2.0%).”
“We remain of the view that Governor Lee is on board with President Park’s view that raising potential growth is the economic priority and that this is a job for supply-side reforms – the 59 detailed tasks of the 474 Plan – not monetary policy.”
Economic data
On an annual basis South Korea's exports dropped by 4.2% in March, compared with the 5.2% increase in February, according to data released on Wednesday by the Bank of Korea. Imports declined 4.5%, after growing 3.6%.
On Thursday the General Administration of Customs of the People’s Republic of China released March trade balance data which showed a shift to a $7.71B surplus, from a $-22.98B deficit and considerably above forecasts of a $0.90B surplus.
Chinese exports surprised on the downside, falling 6.6% year-on-year, up from the 18.1% decrease and against consensus of 4% growth. Imports slid 11.3%, after increasing 10.1% and against projections of a 1.4% rise.
Zhiwei Zhang, Research Analyst from Nomura comments: “Taking into account the issue of misinvoicing in export data, we believe actual export growth may have improved to 5-8% y-o-y in March from around 3% in January-February. The export delivery data due for release on 16 April will help to verify this. We suspect that weak import growth was, to some extent, due to lower commodity prices.”
Malaysian Industrial Production, published by the Department of Statistics Malaysia on Thursday, climbed 6.7%, up from the previous 3.7% increase and slightly above forecasts of +6.3%.
Technicals
The Korean Won jumped to a 5-year high against the dollar on Wednesday during the Asian tradin session. The currency rose by 1.1% from Tuesday's close to a high of 1,039.90 and later, in the US morning to 1035.86 against the dollar.
At the end of the day the USD/KRW rose by 0.21% to 1037.15. The daily FXStreet Trend Index was slightly bearish, and the OB/OS Index oversold. RSI was at 22 at the last close. The 1D 200 SMA was at 1,078.81, while the 1D 20 EMA was at 1,061.45.
It was the first monetary policy meeting chaired by new governor Lee Ju-yeol. During the press conference following the interest rate decision he said that a debate on a potential rate hike should be initiated if the negative output gap closes and upside risks to inflation mount, threatening price stability in the medium term.
“Should the economy keep improving and South Korea’s output gap narrow on top of inflation rising on demand-led pressure, then we will be able to discuss moving interest rates pre-emptively,” Lee Ju-yeol said.
Tim Condon, Head of Research-Asia at ING, comments: “Pending a positive shock forecast of an export-led recovery will be frustrated and we consider Korea’s slow growth-low inflation trend your friend. Our forecast for 2014 GDP growth is 2.8% and for inflation it’s 1.6% (consensus 3.6% and 2.0%).”
“We remain of the view that Governor Lee is on board with President Park’s view that raising potential growth is the economic priority and that this is a job for supply-side reforms – the 59 detailed tasks of the 474 Plan – not monetary policy.”
Economic data
On an annual basis South Korea's exports dropped by 4.2% in March, compared with the 5.2% increase in February, according to data released on Wednesday by the Bank of Korea. Imports declined 4.5%, after growing 3.6%.
On Thursday the General Administration of Customs of the People’s Republic of China released March trade balance data which showed a shift to a $7.71B surplus, from a $-22.98B deficit and considerably above forecasts of a $0.90B surplus.
Chinese exports surprised on the downside, falling 6.6% year-on-year, up from the 18.1% decrease and against consensus of 4% growth. Imports slid 11.3%, after increasing 10.1% and against projections of a 1.4% rise.
Zhiwei Zhang, Research Analyst from Nomura comments: “Taking into account the issue of misinvoicing in export data, we believe actual export growth may have improved to 5-8% y-o-y in March from around 3% in January-February. The export delivery data due for release on 16 April will help to verify this. We suspect that weak import growth was, to some extent, due to lower commodity prices.”
Malaysian Industrial Production, published by the Department of Statistics Malaysia on Thursday, climbed 6.7%, up from the previous 3.7% increase and slightly above forecasts of +6.3%.
Technicals
The Korean Won jumped to a 5-year high against the dollar on Wednesday during the Asian tradin session. The currency rose by 1.1% from Tuesday's close to a high of 1,039.90 and later, in the US morning to 1035.86 against the dollar.
At the end of the day the USD/KRW rose by 0.21% to 1037.15. The daily FXStreet Trend Index was slightly bearish, and the OB/OS Index oversold. RSI was at 22 at the last close. The 1D 200 SMA was at 1,078.81, while the 1D 20 EMA was at 1,061.45.