Bank of Korea extends easing bias after two rate cuts

SEOUL - The Bank of Korea has cut its policy interest rate by 25bps to 2.00% while also trimming its 2014 and 2015 GDP forecasts by 0.3% and 0.1%, respectively, to 3.5% and 3.9% and lowering its 2014 and 2015 CPI forecasts to 1.4% and 2.4% (previously 1.9% and 2.7%).

ANZ Bank says the BOK appears to hold a gloomy view towards the economic outlook. Exports have ‘sustained’ a favourable pattern, according to an ROK statement, and notably, ‘consumption has improved somewhat’.  However, the BOK still deems sentiment to have ‘only partially recovered’ and facilities investments remaining ‘sluggish’.
Governor Lee Ju-yeol projects that the output gap may disappear in H2 2015. The timing of such is ‘somewhat later than previously forecast’. Specifically, the BOK expresses that ‘prolongation of the economic sluggishness in the euro area’ may affect the pace of global recovery. 
ANZ says it believes the BOK is prepared to maintain an easing bias for an extended period – but adds that the BOK will be increasingly reluctant to cut again in Q4 2014 as the base rate is deemed low enough to support growth.
“While our baseline call remains for the policy rate to stay at 2.00% throughout 2015, future actions will be highly data dependent. Nonetheless, it is too early to call for an end of the easing cycle and the risk seems to be tilted towards another cut.” www.live.anz.com (ATI).