South Korean Inflation Likely To Boost Bank Cuts - Online Forex ...

by Richard Lee

With Statistics Korea showing price inflation in the South Korean economy declining to the slowest pace in more than a decade, it all but confirms that the Bank of Korea?s next move will be a rate cut. ?According to statistical data, annualized price increases slowed to 1.5%. ?On a month over month comparison, the measure actually showed a decline of 0.2%.

Now by itself, the figure is rather shocking. ?The slowdown follows an annualized pace of 2.2% in the prior month, and is below forecasts of 2.0%. ?But when combined with additional economic data, the report is downright pessimistic and confirms that Asia?s fourth largest economy is set to slow down even further in the coming quarters. ?The sentiment is in line with sentiment shared by the BoK?s Governor Kim Choong Soo. ?Last month, Governor Kim noted that the pace of expansion in the economy was placing current forecasts for a 3% pace of growth in jeopardy. ?The announcement prompted downward revisions in Korea?s forecasted annualized growth.

Further evidence of a slowdown can be seen in recent export reports that show the steepest decline in South Korean exports since the depth of the global financial crisis, and manufacturers? confidence that remains severely depressed.

The recent spate of data leaves plenty of room for Bank of Korea policymakers in readjusting the benchmark rate lower, especially when the sentiment is in line with other regional central banks. ?The People?s Bank of China is expected to issue at least two more rounds of rate cuts, in addition to further monetary easing, with Japanese counterparts siding with further asset purchase plans.

Ultimately, rate cuts would help to boost morale in the economy and the South Korean won. ?Looser monetary policy would help to ensure the competitiveness of South Korean manufacturers and help to buttress a domestic consumer base that is suffering under amassed credit loans. ?In addition, even with a forecasted rate cut of 25 basis points, yields in the Asian economy remain higher by 250 basis points. ?This will keep trader and investor interest in the currency piqued, especially dollar holders, at least for now.

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Tags: Foreign Exchange, Forex Commentary, South Korean Won, USDKRW

This entry was posted on Tuesday, July 31st, 2012 at 10:38 pm and is filed under Currency Trading, Economic Indicators, Economy, forex options, US Dollar. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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