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Korea: Expect a slightly dovish 25bp rate hike at the November meeting - Nomura

Analysts at Nomura suggest that their Bank of Korea Signal Index Plus (Bloomberg ticker: NNMEIBSIP) suggests a 25bp rate hike, to 1.50%, at the 30 November meeting. 

Key Quotes

Does this change your economic view? No. We expect the Bank of Korea (BOK) to become the first central bank in Asia to hike policy rates in November. But given our view that there are two dovish MPC members, we expect one or two dissenting votes due to weaker October data and stronger KRW.”

Strategy implications? On FX, we expect a limited impact given that the market has already priced in a 25bp hike. However, if the signal is dovish, then equity market inflows could emerge and support KRW. On rates, a slightly dovish hike should suit our small front-end receive (2y) together with steepeners (2s5s and 10s20s). With the market already pricing in more than two 25bp hikes over the next 12 months, there is room for some rate hike premium to be priced out. On the other hand, long-end rates are still too low, in our opinion, given the less-favourable long-end KTB supply/demand dynamics in 2018.”

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