BoK likely to keep rates at 1.5% till end of 2015

South Korea released GDP data for Q2 this morning slowed to 2.2% y/y from 2.5% in Q1 and below expectations of 2.3%.The release highlights downside risks to the economy given weak exports and the spillover from MERS on tourist activity and consumption. Commerzbank assumes, BoK keeping rates at an all-time low of 1.5% till the end of the year as further monetary easing could exacerbate the already-high household debt levels. 

Instead, additional stimulus to support the economy could come from fiscal policy levers. For USD-KRW, it continues to climb upwards to 1162 this morning. This is the highest level for the year. On a month-to-date basis, KRW has fallen by 4.1% against the USD, the highest among Asian currencies. This is followed by THB and SGD at -2.7% and -1.5% respectively. Commerzbank notes Finance Minister Choi's statement made on Tuesday that the ministry may introduce capital controls should the anticipated Fed rate hikes lead to excessive outflows.