Interest Rates on Hold, Korea and Australia

South Korea’s central bank surprised markets by keeping interest rates unchanged on Friday, even as it acknowledged continuing inflationary trends.

In a move reflecting Seoul’s desire to maintain the country’s export competitiveness, the Bank of Korea left interest rates at 2.75%.

Economists add the central bank is also still assessing the impact of the last hike in January, and other recently introduced price control measures.

But markets are already looking ahead to a hike in March after Governor Kim Choong Soo said inflation would top the high end its target inflation band.

[Kim Choong-Soo, Governor, Bank of Korea]:
„The Committee expects the consumer price inflation rate to keep up its high-level trend at around four percent due to the rising pressures by the demand-side as the economic upswing continues and the rising international oil price.“

Producer price data released earlier on Friday offered the latest evidence of inflationary pressures building in Asia’s fourth-largest economy.

Producer fresh food prices rose 46 percent, as overall January PPI rose 6.2 percent from a year earlier. That’s the fastest increase in 26 months.

In contrast, the Australian dollar tumbled over 0.5%, after the Reserve Bank said interest rates would be on hold for the time being.

Although RBA governor Glenn Stevens kept a tightening bias, ANZ Bank’s Tony Morris says the message is clear.

[Tony Morriss, ANZ Bank]:
„He’s just sent out a very clear signal on comfort. He did clarify to the market that the RBA is comfortable, more upbeat, on the international, but for domestic policy settings, I think he’s just ratifying a lot of the expectation in the market.“

Even so, Morriss expects the next move to be up, though it’s likely to be later than sooner.

[Tony Morriss, ANZ Bank]:
„We still think that the next move in interest rates is going to be up in Australia. It’s going to be maybe a little later than some in the market – there are still some calls, forecasts expecting rates to be lifted after the next CPI result. Remember CPI is going to post quite a sharp rise in response to food price rises – but I think the market would now be pushing that out, the yield curve has steepened out, and it’s just policy on hold here in Australia till later on. So it’s just one interest rate hike priced in by the end of the year. I think the market’s looking for that to happen maybe later than had previously been the case.“

Australia’s CPI numbers are due to be released at the end of the month.

Foto: NTDTV