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BoK likely to leave key policy rate unchanged next week amid synchronized global slowdown, says Scotiabank

The Bank of Korea (BoK) is expected to leave its benchmark monetary policy rate unchanged at 1.75 percent at its monetary policy meeting on next Thursday amid a synchronized global slowdown and heightened disinflation risk, according to the latest research report from Scotiabank.

In fact, the central bank is expected to stay pat on the policy rate in the first three quarters this year after delivering a 25 basis points rate hike last November. The KRW will catch up with gains in the THB, while remaining susceptible to the Fed’s monetary policy stance, geopolitical situation on the Korean Peninsula and US-China trade relations.

The Fed has softened its stance recently, improving market sentiment broadly. In the minutes of the Fed’s December policy meeting released last week, the FOMC judged that a relatively limited amount of additional tightening likely would be appropriate and it could afford to be patient about further policy firming.

Meanwhile, the planned second Trump-Kim Summit would be able to improve geopolitical situation on the Korean Peninsula. North Korea's lead negotiator in nuclear talks, Kim Yong Chol, is set to meet US President Donald Trump and Secretary of State Michael Pompeo in Washington on Friday, although the Trump administration is still maintaining radio silence.

He will deliver another letter to President Trump from North Korean leader Kim Jong Un who earlier visited Beijing on January 8-10 at the invitation of Chinese President Xi Jinping. It indicates the second Trump-Kim meeting may take place soon. Trump said on June 1, 2018 that his planned meeting with Kim Jong Un is back on for June 12 in Singapore, after sitting down with Kim Yong Chol.

Last May, Kim Jong Un also met Xi Jinping in the Chinese city of Dalian before flying off to Singapore. South Korea’s Chosun Ilbo newspaper reported Thursday that the announcement of a date and place for a second summit could come as early as Saturday, citing an unidentified diplomatic source, the report added.

In addition, Chinese Vice-Premier Liu He has accepted an invitation to lead a delegation to Washington on 30-31 January with the purpose of reaching a trade deal. It would boost risk sentiment across the markets together with the US stock recovery.

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