Bank of Korea to slash rates again to 2.75%

Blame it on consistently nasty economic conditions that pressure BOK to add stimulus.

According to DBS, the Bank of Korea is expected to cut rates to 2.75% from 3.00% when they meet tomorrow to review monetary policy. If the BOK doesn't move tomorrow, chances are still high that they will cut rates at the next meeting in September.

Here's more from DBS:

The worse than expected deterioration in economic conditions definitely puts pressures on the BOK to add stimulus. Exports fell sharply by -8.8% YoY in July. The leading indicators including machinery orders and business sentiment suggest that investment will also contract in 3Q.

Meanwhile, the rapid slowdown in inflation (1.5% YoY in July) and the rise in real interest rates provide enough flexibility for the BOK to cut the nominal rates further. The best timing for rate cuts is in Aug- Sep, in our view, when growth (QoQ) and inflation (YoY) numbers both reach the bottom. We expect the BOK to pause at 2.75% in 4Q12-1H13.

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