Halister News

(Bloomberg) -- Bank of Korea will hold its key rate at 1.5% on Tuesday despite coming under renewed pressure to ease after BOJ adopted negative rates, Gary Yau, EM strategist at Credit Agricole, writes in client note.

• Market now starting to price in cuts by BOK after the poor Jan. exports data, but for now, there are reasons to believe the bank is on hold
• KTB yields fell sharply in line with global rates following BOJ decision, as mkt prices in increased central-bank dovishness
• BOJ decision shouldn’t affect South Korean monetary policy though; direct effects would be seen through the exchange rate but JPY/KRW is actually higher after BOJ, weakening any call for a cut on that basis alone
• Negative sentiment globally may weigh on South Korean economy, but benefits of additional rate cuts may be small and the bar for additional easing remains high
• Given the volatility of markets, a more dovish tone from the BOK is a possibility but yields on KTBs will require more than dovish rhetoric to rally
• Unanimous decision to hold rates is most likely but gains in yields may be stifled by ongoing risk-off sentiment; any split in votes would be key for chances of cuts going forward