BoK December MPC:From uncertainty to downside risk

The Bank of Korea (BoK) kept the Base Rate unchanged at 1.25% in December, aswidely expected, staying on hold throughout 2H16 by unanimous decision aftercutting 25bp in June. The tone of the MPC statement and the governor's commentsshowed that the Bank is now seeing downside risk to the future growth path,instead of uncertainty, although heightened volatility in financial markets andelevated household debt growth are likely keeping the central bank on hold fornow. The BoK will likely cut again in 2Q17, when faced with lower growth, with thefirm external position allowing for monetary policy divergence from the US.