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20 Mar 2014
Asia EM Express: New BoK governor stresses need for clear communication with markets
FXStreet (Łódź) - Korea's National Assembly approved the nomination of Lee Ju-yeol for Bank of Korea governor on Wednesday. During his parliamentary confirmation hearing Lee Ju-yeol stressed the need for a greater independence of the central bank from the government and for a better communication with financial markets.
"The central bank lost its trust from markets once market participants felt the Bank of Korea was not acting on its promises," he said, referring to surprise rate cut carried out by the BoK in May 2013.
Lee Ju-yeol, who will take over as governor on April 1, stated that the central bank would take a variety of factors into consideration when setting monetary policy, such as growth, inflation and financial stability.
In the opinion of Young Sun Kwon, Research Analyst from Nomura: “The BOK will hike rates by 25bp to 2.75% in December 2014, in an effort to ensure price and financial stability in the medium term.
“However, if Korea's growth and inflation should rise faster than our forecast on a weaker KRW, we would expect the BOK to deliver the 25bp rate hike in September 2014, one quarter before our current forecast.”
Malaysia's central bank, Bank Negara Malaysia, released its annual report yesterday in which projected 4.5-5.5% GDP growth in 2014 and a 3.0-4.0% rise in inflation. It also expects a narrowing of the current account surplus on the back of increased investment spending.
“Monetary surveillance will remain focused on identifying signs that inflation is becoming more pervasive and persistent, where a monetary policy response would become more appropriate,” the BNM signaled in the official release, adding that it was ready to use “targeted policy instruments such as macroprudential measures” to counter risks.
In China, Premier Li Keqiang urged the government on Wednesday to introduce policies s to "stabilize growth and boost domestic demand", which might suggest preoccupation with the recent growth slowdown and moves towards policy easing in the nearest future.
Economic data
Hong Kong released inflation data on Thursday, which showed a 3.9% year-on-year rise in February, down from the previous reading of 4.6%.
Tim Condon from ING comments: “Elevated inflation expectations complicate the problem by stoking demand for inflation hedges like property, which feed into the CPI housing component. On the face of it the Hong Kong Monetary Authority's prudential measures have not worked as well as those of Singapore’s MAS to cool the property market. The Fed’s liftoff from the ZLB may be the best hope for relief.”
Technicals
On Wednesday the yuan fell close to a one-year low, beyond 6.20 against the dollar, on concerns that the PBOC will maintain the currency weak in the face of the recent growth slowdown.
The daily FXStreet Trend Index for USD/CNY was slightly bullish, with the OB/OS Index extremely overbought. RSI was at 80.6120 at the last close. Daily 2-StDev Volatility Bandwidth was shrinking at 280 pips, with ATR (14) expanding at 154 pips. The 1D 200 SMA is at 6.1043, while the 1D 20 EMA at 6.1384.
Tim Condon from ING suggests that the yuan's drop is negative for interbank liquidity. “USDCNY still has about 1% to go before it hits the strong side of the trading band,” the analyst suggets. “We expect it to get there and remain for about three months as people get used to the wider trading band. However, we consider developments in China positive and we expect confidence-sensitive inflows then will drive the pair to the weak side of the band.”
ING's yearend forecast for USD/CNY remains at 6.00.
"The central bank lost its trust from markets once market participants felt the Bank of Korea was not acting on its promises," he said, referring to surprise rate cut carried out by the BoK in May 2013.
Lee Ju-yeol, who will take over as governor on April 1, stated that the central bank would take a variety of factors into consideration when setting monetary policy, such as growth, inflation and financial stability.
In the opinion of Young Sun Kwon, Research Analyst from Nomura: “The BOK will hike rates by 25bp to 2.75% in December 2014, in an effort to ensure price and financial stability in the medium term.
“However, if Korea's growth and inflation should rise faster than our forecast on a weaker KRW, we would expect the BOK to deliver the 25bp rate hike in September 2014, one quarter before our current forecast.”
Malaysia's central bank, Bank Negara Malaysia, released its annual report yesterday in which projected 4.5-5.5% GDP growth in 2014 and a 3.0-4.0% rise in inflation. It also expects a narrowing of the current account surplus on the back of increased investment spending.
“Monetary surveillance will remain focused on identifying signs that inflation is becoming more pervasive and persistent, where a monetary policy response would become more appropriate,” the BNM signaled in the official release, adding that it was ready to use “targeted policy instruments such as macroprudential measures” to counter risks.
In China, Premier Li Keqiang urged the government on Wednesday to introduce policies s to "stabilize growth and boost domestic demand", which might suggest preoccupation with the recent growth slowdown and moves towards policy easing in the nearest future.
Economic data
Hong Kong released inflation data on Thursday, which showed a 3.9% year-on-year rise in February, down from the previous reading of 4.6%.
Tim Condon from ING comments: “Elevated inflation expectations complicate the problem by stoking demand for inflation hedges like property, which feed into the CPI housing component. On the face of it the Hong Kong Monetary Authority's prudential measures have not worked as well as those of Singapore’s MAS to cool the property market. The Fed’s liftoff from the ZLB may be the best hope for relief.”
Technicals
On Wednesday the yuan fell close to a one-year low, beyond 6.20 against the dollar, on concerns that the PBOC will maintain the currency weak in the face of the recent growth slowdown.
The daily FXStreet Trend Index for USD/CNY was slightly bullish, with the OB/OS Index extremely overbought. RSI was at 80.6120 at the last close. Daily 2-StDev Volatility Bandwidth was shrinking at 280 pips, with ATR (14) expanding at 154 pips. The 1D 200 SMA is at 6.1043, while the 1D 20 EMA at 6.1384.
Tim Condon from ING suggests that the yuan's drop is negative for interbank liquidity. “USDCNY still has about 1% to go before it hits the strong side of the trading band,” the analyst suggets. “We expect it to get there and remain for about three months as people get used to the wider trading band. However, we consider developments in China positive and we expect confidence-sensitive inflows then will drive the pair to the weak side of the band.”
ING's yearend forecast for USD/CNY remains at 6.00.