[Geumtongwi poll] ① South Korea '5 Consecutive' Rate Holds... Low Expectations for Rate Cuts Within the Year

Survey of 21 Market and Economic Experts
Possibility of 0.1%p Growth Rate Downgrade
Most Expect Korea's Interest Rate Cut in Q1 Next Year

The Bank of Korea is overwhelmingly expected to keep the base interest rate steady at 3.5% for the 'fifth consecutive' time at the Monetary Policy Committee meeting scheduled for the 24th of this month. This is due to the consumer price inflation rate dropping to 2.3% in July, gradually showing signs of inflation stabilization, and the increased possibility of downward revisions to South Korea's growth rate amid concerns over a China-originated economic downturn, which lowers the need for further rate hikes.

While the majority forecast for the timing of rate cuts is the first quarter of next year, expectations for a rate cut within this year have somewhat diminished. Although concerns remain about the negative impact of China-related risks on the domestic economy, the U.S. economy has shown better-than-expected performance, lending weight to the view that the tightening cycle may last longer than initially anticipated. However, factors that could prompt rate hikes, such as the recent rebound in international oil prices, surging household debt, and the rising won-dollar exchange rate, are not insignificant, making the calculation around the timing of rate cuts more complex.

August Monetary Policy Committee: 100% Forecast for 3.5% Rate Hold

According to a recent survey conducted by Asia Economy among 21 analysts from domestic and international securities firms, banks, and economic research institutes, all respondents predicted that the Monetary Policy Committee will keep the base rate at 3.5% this month, following last month’s decision. Gong Dong-rak, a researcher at Daishin Securities, said, "As the consumer price inflation rate has entered the 2% range, the scope for responding to inflation issues is gradually weakening. On the other hand, concerns about economic sluggishness persist, so the committee will likely confirm the effects of the accumulated monetary tightening by maintaining the current rate." Kim Sun-tae, an economist at KB Kookmin Bank, noted, "While there is still a possibility of additional rate hikes in the U.S. and some pressure from domestic economic recovery and rising inflation, the growing China-related risks are problematic. Given that instability in real estate project financing (PF) has not been resolved, rate hikes could be burdensome."

If the Bank of Korea holds the base rate steady at this month’s meeting, it will mark the fifth consecutive hold following February, April, May, and July. All 21 experts also expect the rate to remain unchanged at the next Monetary Policy Committee meeting in October. Yoon Yeo-sam, a researcher at Meritz Securities, said, "Despite high inflation uncertainty due to rising international oil prices and monetary tightening pressure from surging household loans, the burden of export-centered domestic economic slowdown and financial stability concerns from real estate restructuring have increased the need for balanced and cautious monetary policy. It will be difficult for Korea to implement additional rate hikes going forward."

"U.S. September FOMC Rate Hold Expected... Only One Predicts Hike"

The prevailing view that the U.S. Federal Open Market Committee (FOMC) will hold rates steady next month also supports the expectation of a rate hold by the Bank of Korea. Among 21 experts, 20 predicted that the U.S. FOMC will keep the base rate unchanged (upper bound at 5.5%) next month, with only one expecting a hike. Cho Young-moo, a research fellow at LG Economic Research Institute, said, "As U.S. inflationary pressures gradually ease, the U.S. economy is expected to weaken toward the end of the year. Instability in China’s real estate sector will also add to the burden of further rate hikes in the U.S." Although U.S. inflation slowdown is becoming visible, tight labor markets and robust household consumption remain as factors that could push rates up or down, leading most to believe the Fed will hold rates in September but keep the door open for hikes. Kim Sung-soo, a researcher at Hanwha Investment & Securities, said, "The U.S. economy is entering what Fed officials call a Goldilocks phase of good growth and low inflation. If economic growth and price stability coexist, the rationale for cutting growth to stabilize prices weakens. Additionally, concerns about excessive tightening recently mean that maintaining the current rate level will be more important than hikes going forward."

On the other hand, Joo Won, head of economic research at Hyundai Research Institute, said, "According to the minutes of the FOMC released on the 16th, there are concerns about upside inflation risks, and many Fed officials have raised the need for additional rate hikes. Since the Fed continues to signal hikes and the U.S. economy remains strong, the base rate could be raised in September."

"Korea to Cut Rates in Q1 Next Year... U.S. Split Between Q1 and Q2"

Regarding the timing of rate cuts in Korea, the majority (11 respondents) expect it to be in the first quarter of next year, followed by the second quarter (6 respondents) and the fourth quarter of this year (4 respondents). In the July Monetary Policy Committee poll, seven experts predicted rate cuts in the fourth quarter of this year, ranking just behind the ten who expected cuts in Q1 next year. However, in this survey, the number expecting rate cuts within this year dropped to four, reflecting diminished expectations for rate cuts within the year.

For the U.S., the timing of rate cuts is evenly split between Q1 and Q2 next year, with nine respondents each. The fourth quarter of this year (2 respondents) and the third quarter of next year (1 respondent) followed. In the July poll, 14 respondents expected rate cuts in Q1 next year, but this number dropped to nine in a month, while those expecting Q2 rose from seven to nine. Despite the slowdown in U.S. inflation, significant upside inflation risks remain, and many expect the current tightening cycle to last longer than initially anticipated, leading to a general delay in the timing of U.S. rate cuts.

Hong Chun-wook, CEO of Prism Investment Advisory, said, "Considering Korea’s inflationary pressures alone, rate cuts within this year are possible, but the rate hold is expected to continue until the Fed signals the possibility of rate cuts, making Q1 next year a likely time for cuts. In the U.S., construction indicators such as new housing starts are improving, so rent inflation pressures may rise again next year, and rate cuts in Q2 are possible as economic and labor market momentum weaken due to rising real interest rates."

Park Seok-gil, an economist at JP Morgan, said, "Considering Korea’s household debt issues, it is premature to change policy stance to rate cuts soon. Korea is expected to cut rates only in Q2 next year." Kim Ji-na, a researcher at Eugene Investment & Securities, who expects rate cuts in Q2 for both Korea and the U.S., added, "Although the U.S. economy is undergoing a soft landing, factors such as depletion of household excess savings, rising corporate borrowing costs, increased corporate bond refinancing demand next year, and the lagged effects of accumulated tightening suggest that further tightening will be maintained long-term rather than additional easing."

"Bank of Korea Likely to Lower Growth Forecast by 0.1%p to 1.3% This Year"

The Bank of Korea will also announce its revised economic outlook on the 24th. In May, the Bank projected this year’s consumer price inflation and economic growth rates at 3.5% and 1.4%, respectively. In the revised outlook, seven experts each expect the growth forecast to be lowered by 0.1 percentage points from 1.4% to 1.3%, or to remain at 1.4%. Regarding the consumer price inflation forecast, nine expect the Bank to maintain the existing 3.5%, while four expect a 0.1 percentage point reduction to 3.4%.

Kang Min-joo, an economist at ING Bank, said, "Although the second-quarter growth was stronger than expected, the sluggish recovery in China, increased real estate risks, European recession, and delayed semiconductor recovery have continued to weigh on the expected economic recovery in the second half, so the growth forecast is likely to be slightly revised downward. Inflation is expected to continue slowing, but the rebound in international oil prices and agricultural product price increases due to natural disasters coinciding with Chuseok will exert upward pressure, so the consumer price inflation forecast will likely be maintained."

An Jae-kyun, a researcher at Shinhan Investment Corp., predicted, "Due to the negative impact of sluggish Chinese economic conditions, the growth rate will be revised downward by about 0.1 percentage points."

On the other hand, Kim Sang-hoon, a researcher at Hana Securities, said, "Although international oil prices have risen, they have not exceeded expected ranges significantly, and the easing of travel restrictions is a positive factor despite the China-originated economic slowdown, so the Bank of Korea’s existing forecast will be maintained."

Experts Responding to Asia Economy’s Monetary Policy Committee Poll

Kang Min-joo (Economist, ING Bank), Kang Seung-won (Researcher, NH Investment & Securities), Kim Sang-hoon (Researcher, Hana Securities), Kim Sun-tae (Economist, KB Kookmin Bank), Kim Sung-soo (Researcher, Hanwha Investment & Securities), Kim Ji-na (Researcher, Eugene Investment & Securities), Gong Dong-rak (Researcher, Daishin Securities), Moon Hong-chul (Researcher, DB Financial Investment), Park Seok-gil (Economist, JP Morgan), Baek Yoon-min (Research Fellow, Kyobo Securities), Ahn Ye-ha (Researcher, Kiwoom Securities), Ahn Jae-kyun (Economist, Shinhan Investment Corp.), Lim Jae-kyun (Researcher, KB Securities), Yoon Yeo-sam (Researcher, Meritz Securities), Jung Sung-tae (Research Fellow, Samsung Securities), Cho Young-moo (Research Fellow, LG Economic Research Institute), Cho Yong-gu (Research Fellow, Shin Young Securities), Joo Won (Head of Economic Research, Hyundai Research Institute), Heo Moon-jong (Head of Global Economic Research, Woori Financial Research Institute), Heo Jeong-in (Researcher, Daol Investment & Securities), Hong Chun-wook (CEO, Prism Investment Advisory)

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