Hanwha Investment & Securities "Interest Rates Will Fall Only After Q3 Next Year"

[Asia Economy Reporter Junho Hwang] It is forecasted that next year’s interest rates will enter a downward stabilization phase in the first quarter and show a gradual decline.

Hana Investment & Securities Research Center stated in its bond outlook for next year, "Accompanying or Waiting," "The economy may not be as bad as expected, and since the central bank’s stance is unlikely to change at least until the end of the year, a full-scale decline in interest rates is expected to materialize after the third quarter."

It is expected that the central banks of Korea and the United States will maintain their benchmark interest rates at 3.75% and 4.75%, respectively, at least until the end of the year. Given that raising the benchmark interest rate further to quickly curb high inflation would incur too high a cost, it is likely that the interest rate level will be maintained for a certain period.

In particular, the core of Korea’s monetary policy is expected to be policy synchronization with the United States. Considering the increased financial instability in the United Kingdom and Japan, which moved differently from the Federal Reserve (Fed) despite being key currency countries, it is forecasted that Korea, which is more vulnerable to external variables than these countries, has no choice but to make this decision. In the case of the Fed, the end of interest rate hikes is expected to be a stop rather than a policy pivot.

Once the interest rate hike cycle ends in the first quarter of next year, market attention is expected to naturally shift to the economy. However, the economy is unlikely to have as significant an impact on the market as policy does. In the United States, relatively favorable economic fundamentals continue, and employment remains strong. However, Korea has already entered a slowdown phase since mid-this year.

Potential risks in the global financial market include the ECB’s policy failure and the expansion of financial instability in Eurozone countries. Supply-side pressures, which are difficult for central banks to control, are driving inflation, and the pace of economic slowdown is also rapid. To make matters worse, the gap between inflation and economic conditions across countries is widening, making it increasingly difficult to reach unified policy decisions.

Seongsu Kim, a researcher at Hanwha Investment & Securities, said, "It is not difficult to consider that the benchmark interest rate hike cycle will end by the first half of next year at the latest. However, the exact end point, the final interest rate level, and the resulting effects are situations even policy authorities are not confident about. The high market volatility this year was due to attempts to anticipate and get ahead of central bank moves, and it is important not to precede policy but to accompany it."

This content was produced with the assistance of AI translation services.