Bank of Korea (August 2017):On hold by unanimous decision

2019-10-05 作者:基金股票   |   浏览(194)

The Bank of Korea (BoK) kept the base rate unchanged at 1.25%, as widelyexpected. The decision to stand pat was unanimous, as we had expected, althoughseveral media wires (e.g. Yonhap) had reported the possibility of a minority vote tohike the policy rate. The BoK governor did not provide any hint of imminent rateaction, especially as the uncertainty surrounding the growth outlook is elevateddue to geopolitical tensions and government measures are stabilizing housingprice gains. We expect the BoK to stay on hold in the foreseeable future, as growthremains stable while inflation decelerates in 4Q17.

Conclusion: RBI kept policy rates on hold, as per expectations. However, theRBI marginally raised the 2HFY18inflation forecasts by10bps, reflecting theincoming data. We read the policy statement as neutral. We expect the RBI to beon an extended pause with inflation risks contained and growth in a gradualrecovery mode. With ongoing liquidity tightness to persist into the fiscal year-endwe expect market rates to remain under pressure which could potentially hurtfinancial stocks, particularly NBFCs, which have been a beneficiary of benignliquidity conditions.

    Details

    RBI kept policy rates on hold – in line with expectations: The RBI kept policyrates unchanged with the repo rate (the rate at which the RBI injects liquidity)at 6.0% in the policy review today. Accordingly, the reverse repo and marginalstanding facility (MSF) rates stand unchanged at 5.75% and 6.25%, respectively.Five members of the MPC voted for status quo, while one member (RavindraDholakia) voted for a 25bp rate cut. The minutes of the MPC’s meeting will bepublished on 20th Dec and will record the views of each member.

    RBI marginally raised inflation projections and retained its growth estimate:

    The RBI marginally increased its inflation expectations for 2HFY18to 4.3-4.7%(from 4.2-4.6% earlier) taking into account the recent rise in food and fuel prices.On the growth front, the RBI retained the GVA projection at 6.7% for FY18,expecting an improvement in economic activity in 2HFY18.

    Neutral policy stance retained: The MPC retained a neutral stance as ithighlighted risks to inflation and growth remaining balanced, and reaffirmed itscommitment to keeping inflation close to the 4% mark on a durable basis.Our view – Extended pause: We expect RBI to keep policy rates on an extendedpause going into FY19as inflation is likely be around 4.5% (barring volatility dueto base effect) and growth is expected to be on a gradual recovery path.We believe that weaker-than-expected growth momentum in QE Sep would haveraised concerns of a growth recovery, however with GDP growth at 6.3% andcore GVA (excluding agri and public admin) at a 5-quarter high of 6.8%, theunderlying growth weakness seems to be abating. In this context, we expect RBIto watch the evolving growth – inflation dynamics and stay on pause.

    What about rate hikes? Some market participants have started talking aboutrate hikes in FY19. In our view, a rate hike in FY19will be premature as weexpect a gradual growth recovery (FY19e at 7.2%) and inflation risks to becontained (FY19e at ~4.5%), which does not warrant a further widening ofreal rates. The trigger for a rate hike, in our view, would be

    (1) a sharp rise ingrowth, with the output gap turning positive, which creates concerns of aggregatedemand pressure and

    (2) a simultaneous rise in inflation with meaningful risk of asustained increase in CPI to the upper threshold of the 4+/-2% inflation band.We currently do not foresee these conditions evolving in FY19.

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