Asia Weekly: A close call in Korea, BI’s surprise cut

While most analysts expect the Bank of Korea to keep rates unchanged at Thursday’s meeting, we are forecasting a cut. Although GDP growth rebounded last quarter, the poor prospects for construction and exports mean growth will slow in the near term. And with inflation subdued and little evidence that lower rates are leading to an increase in financial stability risks, the case for further easing remains strong.

Bank Indonesia surprised markets with back-to-back rate cuts on Wednesday and is likely to continue easing over the coming months, helped by a combination of low inflation, weak credit growth, and a resilient rupiah. We expect at least two more 25bps cuts before year-end.