SEOUL: The South Korean short-term bonds closed modestly lower on Thursday after data showed higher than expected first quarter Gross Domestic Product (GDP) figure. The 10-year bonds yield, which moves inversely to its price hovered at 1.760 percent, short-term 3-year bonds yield rose ½ basis points to 1.446 percent and 4-year bonds yield climbed near to 1 basis point to 1.515 percent by 06:00 GMT.
The South Korea’ first quarter GDP expanded by 2.8 percent y/y, beating estimates for 2.7 percent y/y; in q/q terms, GDP expanded by 0.5 percent q/q seasonally adjusted in Q116, higher than previous estimates of 0.4 percent q/q seasonally adjusted.
Yesterday, South Korean consumer prices rose by 0.8 percent y/y in May, less than estimates for 0.9 percent y/y, from 1 percent in April. Industrial goods inflation mainly contributed to the headline inflation rate, down 0.9 per cent on-year and easing for a fifth straight month. Within industrial goods, inflation for mostly oil-related products saw declines, including gasoline, diesel and liquefied petroleum gas (LPG).
In addition, South Korea’s exports shrank for a 17th consecutive month in May, fell by 6.0 percent y/y, greater than estimates for -0.4 percent y/y, from -11.2 percent in April. Korean exports have been in decline since January 2015 due to sluggish global trade, lower oil prices and a slowdown in China–which takes in a quarter of Korea’s total shipments overseas. Similarly, South Korea’s imports declined by 9.3 percent y/y in May, less than estimates for -9.7% y/y, as compared to -14.9 in April.
According to Donn-A Ilbo newspaper, the South Korea’s government will cut its 2016 growth forecast to below 3 percent from 3.1 percent when it releases economic policy plans for H216 in June.
The Bank of Korea’s Monetary Policy Board in its May monetary policy meeting unanimously decided to maintain the key policy rate at 1.5 percent and also did not make any considerable changes in May’s policy statement. According the monetary policy’s board concluded that the global economy will continue with its recovery, but at a slower pace. Meanwhile, the central bank of Korea foresees modest rebound in the Korean economy, especially domestic demand.
However, it is highly uncertain regarding the growth trajectory and projected the CPI inflation to remain at low levels. Meanwhile, The Korea Composite Stock Price Index (KOSPI) closed up 0.12 percent at 1,985.11 points by 06:00 GMT.
