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Forex Flash: The BOK is not like the ECB this time - Nomura

FXstreet.com (Barcelona) - Nomura economist, Young Sun Kwon notes that unlike in the euro area, Korea's GDP growth accelerated in Q1 and he expects the Bank of Korea to stay on hold at 2.75% this Thursday despite the ECB cutting rates by 25bp to 0.50% last week.

He adds that in July 2012, both the Bank of Korea (BOK) and ECB cut rates, and some argue that the BOK will cut rates by 25bp this Thursday after the ECB‟s 25bp rate cut last week, but he disagrees. He comments that Korea‟s GDP growth has been decoupled from the euro area since Q4 2012. Euro area GDP should continue to fall in Q1, but Korea‟s GDP accelerated to 3.5% (seasonally adjusted annualized rate) in Q1 from 1.1% in Q4. Further, he notes that Korea‟s industrial output in April looks weak on export figures, but these data should belie solid Q2 GDP growth, just as in Q1. He sees that this is because the industrial output report increasingly underestimates the real growth rate of the gross valued added by the technology sector. Additionally, Korea‟s CPI inflation slowed to 1.2% y-o-y in April, largely due to free schooling and lower energy prices. He writes, “We believe that the four hawkish MPC members will focus more on inflation expectations (3.1%). It is a very close call, but we expect the BOK to stay on hold at 2.75% at its 9 May meeting with three dissenting votes out of seven MPC members.”

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