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The Bank of Korea (BOK) unanimously decided to leave its policy rate at 1.50%, as was widely expected, notes the research team at Nomura.

Key Quotes

“We maintain our call for a 25bp rate hike to 1.75% at the 12 July meeting as the BOK maintained its economic outlook.”

Strategy implications? Korea rates have rallied another 3-4bp today after an overnight US rates rally and the BOK’s decision. However, we believe the unanimous decision was already largely priced in ahead of the meeting. The 6×9 FRA is now 25bp above the 3m CD fixing, but if we take out the seasonal higher CD fixing towards yearend, the market in our opinion is probably pricing less than one 25bp hike over the next three meetings. With our base case of a July hike still intact, we expect limited downside in front-end Korea rates and recommend a small pay 3y position (around 20% of our full intended size).”