ING "Korean Inflation Expected to Stabilize Faster Than Anticipated... Returning to 2% Range Early Next Year"

"Bank of Korea Expects Interest Rate Cut Around Q2"

It is forecasted that South Korea's inflation rate will quickly stabilize and return to the 2% range by early next year.

Global financial group ING recently released a forecast report stating, "The inflation rate in November showed a slowdown due to the impact of food and gasoline prices, and it is expected that the inflation rate will return to the 2% range by early next year," adding, "The Bank of Korea will be free from inflation concerns."

According to Statistics Korea, the domestic consumer price index in November rose by 3.3% compared to the same month last year. This figure is lower than October's 3.8% and the market estimate of 3.5%. The decline in the inflation rate is attributed to the drop in food and energy prices. The core inflation index, which excludes food and energy, rose by 3%.

Compared to the previous month, it fell by 0.6% (based on the original series). Public utility prices such as electricity, gas, and water, as well as service prices, remained unchanged from October, while prices of agricultural, livestock, and fishery products (-4.9%) and industrial products (-0.3%) dropped significantly.

[Image source=Yonhap News]

ING evaluated that government policies for price stabilization contributed significantly to this. Vegetable prices (-10.3%) fell due to the government's supply of stockpiled quantities and the issuance of vouchers. Oil prices (-3.5%) also dropped sharply due to the decline in international oil prices and the government's extension of the fuel tax reduction program.

However, ING predicted that upward inflation risks will still remain next year. It analyzed that if various government support programs end within a few months, a rebound will occur accordingly. Because of this, ING suggested that the timing of the Bank of Korea's interest rate cuts next year could be later than its current forecast of the second quarter.

Kang Minju, Senior Economist at ING Bank, said, "To predict the Bank of Korea's policy, it is essential to consider the impact of excessive household debt and its growth rate on the macroeconomy. Last month, the government's facility fund loan program ended, and market sentiment toward real estate prices weakened," adding, "It is expected that the growth rate of household debt will slow down over the next few months."

She continued, "Despite the Bank of Korea's hawkish stance, the market seems likely to preemptively price in an interest rate cut next year," explaining, "Since tight monetary policy suppresses demand-side inflation and economic growth, interest rates are expected to fall around the second quarter of next year."

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