Korea cautious of capital volatility in December

Korean central bank, BoK kept its policy rates unchanged at 1.5% in the month of December as well, as predicted by consensus. This decision was unanimous and the statement's tone and governor's remarks remain neutral, albeit not so positive on domestic demand, as in November.

US Fed was the key focus in its December meeting, as the re-ordering of risk factors in the final statement of the bank  suggested. Reversing past few months' order, Fed and monitoring capital flows were placed ahead.

The governor believes that there will not be rapid slow down in consumption moving into 2016, after the temporary consumption tax rebates will be withdrawn.

Although the country's domestic demand is under recovery, led by consumption, the declining trend of exports persisted, while the improvement in economic sentiments were inadequate.

Currently, USD/KRW is trading at 1179.2453, while KRW is trading at 1297.7594 against EUR.

"The BoK remains wary of the persistent trend of weak external demand, particularly from China, which we now believe is likely to be deeper and more persistent than we had previously expected", says Barclays in a research note.