Korea's inventory overhang improves a little

The persistent sluggishness in the trade performance and the large inventory overhang in autos and electronics increase the likelihood that Q3 GDP growth may undershoot the official expectations of at least 1% q/q sa. 

"After the sharp drop in exports in August, the BoK is now expected to deliver a further 25bp rate cut in Q4, most likely on 15 October, when it presents its revised outlook for the economy. The BoK would prefer to act after the initial delivery of the fiscal supplementary spending.  We see a possibility of a later move in November, but the risks are low", says Barclays. 

Moreover, this suggests that the BoK could revise downward its 2015 full-year growth forecast at the October meeting, likely to slightly below 2.5%. 

"To reflect the change in the policy rate forecast, our first rate hike forecast is delayed to Q3 16, from late Q1 16. More importantly, the existing focus on engineering a weaker KRW bias, possibly by stockpiling essential commodities such as fuel will remain", added Barclays.