“GDP growth slowed to a three-year low of 2.3% y/y in Q2,” Sukhy expands, “and we think it fell further still in Q3. Business confidence has plunged, which bodes ill for Q4 too. The BoK lowered its 2012 growth forecast to 2.7% today. Our forecast is 2.5%.”
Thus, “Inflation should not be a barrier to further policy loosening,” the economist believes, noting that “Korea’s inflation is likely to remain below the mid-point of the central bank’s 2-4% target range for some time yet.”
“We think policy should be loosened again sooner rather than later. We think the next 25bp rate cut will probably come in early 2013,” the economist concludes.