South Korea's about to get way more dovish

The Bank of Korea just announced four new nominees to its board.

The four candidates are Lee Il Houng, the head of Korea Institute for International Economic Policy, Cho Dong Chul, the chief economist for state-run Korea Development Institute, Koh Seung Beom, the Standing Commissioner of Financial Services Commission, and Shin In Seok, the head of Korea Capital Market Institute.

Their appointments come at a time when Korea’s economy is slowing and export growth has decelerated.

And analysts believe that at least some of the new appointees are quite dovish, which suggests that the BoK may cut its already-record low rate of 1.5% even further.

In a recent note to clients, Morgan Stanley analysts pointed out that two of the nominees — Cho Dong Chul and Shin In Seok — have working experience at the Korea Development Institute, which sees a deflation risk for South Korea and has been calling for greater monetary response from the BoK.

Meanwhile, among those leaving will be the hawkish Moon Woo Sik.

“News reports of nominations for replacement BoK members retiring next month (April 20) see a greater dovish bias in incoming members than outgoing members,” the Morgan Stanley team wrote.

“Nominations of dovish BoK members increase the probability of near-term easing, in our view,” they added.

The new nominees need to be approved by President Park Geun Hye, and will replace four policy makers whose terms end on April 20. However, given that the next BoK meeting is April 19, the four new appointees won’t make their mark until the May 13 meeting.

More broadly, South Korea’s economy has been sputtering.

Perhaps most tellingly, South Korea’s exports, which are sometimes called the world’s economy “canary in the coal mine” due to their exposure to the US, China and Japan, fell for a 15th straight month in March.

Additionally, South Korea’s won remains near an eight-year high against the Japanese Yen. This is notable as the two countries remain in fierce competition over exports.

The won is currently trading around 10.25 per yen, but touched 11.00 per yen back in February.

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