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Forex Flash: South Korean rates on hold could be a wake up call - Nomura

FXstreet.com (Barcelona) - Nomura economist Young Sun Kwon is expecting Q1 GDP to accelerate from Q4 and the BoK to stay on hold, surprising the market which seems hypnotised by the Government´s unconvincing GDP forecast.

He begins by explaining that he estimates GDP growth will accelerate to 0.5% (sa) q-o-q in Q1 from 0.3% in Q4 2012, based on Statistics Korea‟s industrial output report. However, he see upside risks to his Q1 forecast as the Bank of Korea (BOK) uses a different deflator than Statistics Korea. He writes, “Q1 GDP growth may prove to be as high as 0.8% (sa) q-o-q.” When GDP (seasonally adjusted, QoQ) decelerates or falls, the BoK usually cuts rates, and hikes when GDP growth accelerates or surges. He feels that the fundamental issue with the government‟s new GDP forecast of 2.3% for 2013 (from 3.0%) is that the government has not provided any specific rationale for the revision lower. No detailed forecasts of GDP components such as consumption, investment and exports have been provided. He writes, “In our opinion, the market seems to have been hypnotised by what we see as an unconvincing lower growth forecast. We assign a 55% likelihood to no move by the BoK tomorrow, and if this materialises, we believe the market will take it as a wake-up call.”

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