[Geumtongwi poll]② 38% of Experts Say "Interest Rate Cuts to Begin in Q4 This Year"

Final Stage of Austerity... Focus on Timing of Interest Rate Cuts
Experts Say "Cuts Expected by First Half of Next Year at the Latest"
Mixed Views on Financial Instability from SVB Bankruptcy
"Limited Domestic Impact but Too Early to Be Assured"

Among 21 domestic experts, 62% identified the first half of next year as the time when the Bank of Korea will start cutting its benchmark interest rate, while 38% pointed to the second half of this year. Many analyses suggested that the central bank would no longer maintain high interest rates, given the slowdown in inflation rates in major countries including Korea and the U.S. this year, as well as the recent increase in domestic and international financial market instability.

When Will the Rate Cut Happen? ... 'From Second Half of This Year to First Half of Next Year'

According to a survey conducted by Asia Economy from the 31st of last month to the 5th of this month targeting 21 researchers from domestic and international securities firms, banks, and economic research institutes, the most common answer to the question about the timing of the Bank of Korea's benchmark interest rate cut was "the first half of next year," with 13 respondents (62%) choosing this option.

Eight experts (38%) answered that the rate cut would begin in the second half of this year, while no one expected the rate cut timing to be delayed beyond the second half of next year.

In comparison, a survey conducted by Asia Economy on February 23 before the Monetary Policy Committee meeting (with 22 participants) showed that the most common answer to the same question was "the second half of this year" with 12 respondents (55%), followed by "the first half of next year" with 9 respondents (41%), and "the second half of next year" with 1 respondent (4%).

Compared to this, experts' expectations for the timing of the rate cut have somewhat shifted later from the second half of this year to the first half of next year within about a month and a half. This is interpreted as an increase in a wait-and-see stance due to significant uncertainties such as the U.S. economy, the sharp rise in international oil prices, and the Federal Reserve's (Fed) monetary policy.

Recently, major oil-producing countries such as Saudi Arabia and Russia announced plans to cut production by 1.16 million barrels per day starting next month, which also had an impact. If international oil prices rise again close to $100, the Fed's easing of tightening could be delayed, and domestic import prices could rise, making it more difficult for the Bank of Korea to cut rates.

"Tightening is Over Now" ... Attention Shifts to Rate Cuts

However, despite differences in timing, the majority of experts still predominantly analyze that the Bank of Korea's rate hike streak has ended, and only rate freezes and cuts remain. Although variables such as oil prices exist, inflation, which is the most important factor in deciding monetary policy, is on a downward trend, and above all, financial market instability is increasing.

Yoon Seok-jin, a researcher at Hana Financial Management Research Institute, predicted, "Considering the already record-high domestic and foreign interest rate inversion spread, the Bank of Korea is expected to start cutting the benchmark interest rate in the first half of next year in line with the Fed's policy shift rather than preemptive rate cuts."

Heo Moon-jong, head of the Economic Global Research Office at Woori Financial Management Research Institute, said, "After confirming a clear slowdown in inflation and considering downward pressure on the economy, the Fed and the Bank of Korea are expected to shift their policy stance in the first half of next year."

Lee Chang-yong, Governor of the Bank of Korea, is striking the gavel at the regular Monetary Policy Committee meeting held at the Bank of Korea in Jung-gu, Seoul, on February 23. (Photo by Joint Press Corps)

Economic Slowdown Intensifies... Some Forecast Rate Cuts in Q4 This Year

As concerns about economic slowdown in Korea and the U.S. grow, many also forecast that rate cuts could begin from the fourth quarter of this year. The Bank of Korea's benchmark rate decisions are heavily influenced by the U.S. situation, and there is increasing analysis that the Fed may consider rate cuts soon due to side effects from excessive tightening.

Ahn Jae-gyun, a researcher at Shinhan Investment Corp., explained, "In the U.S., the effects of tightening will become more prominent after mid-Q2, and as growth slows further in the second half, it will serve as a rationale for rate cuts in Q4. Korea could also initiate rate cuts in Q4 due to expectations of the Fed's policy shift in the second half and sluggish domestic trends."

Yoon Yeo-sam, a researcher at Meritz Securities, said, "The U.S. is currently undergoing excessive tightening, and as the economy contracts mainly in corporate activities, employment and consumption are expected to slow down. We need to keep in mind the possibility of a shift to rate cuts within this year."

Opinions were divided on whether the Bank of Korea could cut rates before the Fed. While most forecasted the same timing, slightly more believed the Bank of Korea would cut rates first.

Researcher Yoon explained, "Korea could take preemptive benchmark rate cuts based on expectations of U.S. monetary easing and domestic economic slowdown."

60% of Experts Say "There is an Impact from Global Financial Instability"

The growing market expectations for rate cuts were greatly influenced by the global financial instability triggered by the bankruptcy of Silicon Valley Bank (SVB) in the U.S. and the merger of Swiss Credit Suisse (CS) into UBS.

In the Asia Economy survey, when asked about the impact of global financial instability such as the SVB bankruptcy on the domestic financial market, 9 out of 20 experts answered "somewhat affected," and 3 answered "very affected," totaling 12 experts (60%) who believed there would be ripple effects.

No one answered "almost none," while 6 answered "minimal impact," and 2 answered "moderate." Although the U.S. and Swiss financial authorities intervened quickly, somewhat alleviating concerns, the fear experienced once is expected to affect banks and other financial institutions, with the possibility of crises recurring over the next few years.

Kang Min-joo, chief economist at ING Bank, said, "As global economic uncertainty increases, the rebound in sluggish exports may be delayed. The previous rate hikes have weakened corporate profits and investment, so additional financial sector instability could negatively affect the domestic financial market."

Baek Yoon-min, a researcher at Kyobo Securities, pointed out, "In the case of the bankrupt U.S. banks, operational mistakes are involved, but the cumulative ripple effects during the ongoing monetary tightening process are also appearing. The direct impact on the domestic financial market is somewhat limited, but it is still not a stage to be complacent."

Experts Responding to Asia Economy's Monetary Policy Committee Poll

Kang Min-joo, economist at ING Bank; Gong Dong-rak, researcher at Daishin Securities Asset Research Department; Kim Sang-hoon, researcher at Hana Securities; Kim Sun-tae, economist at KB Kookmin Bank; Kim Sung-soo, researcher at Hanwha Investment & Securities; Kim Ji-na, researcher at Eugene Investment & Securities; Moon Hong-cheol, researcher at DB Financial Investment; Park Seok-gil, economist at JP Morgan; Baek Yoon-min, research fellow at Kyobo Securities; Ahn Ye-ha, researcher at Kiwoom Securities; Ahn Jae-gyun, economist at Shinhan Investment Corp.; Oh Chang-seop, researcher at Hyundai Motor Securities; Woo Hye-young, researcher at Ebest Investment & Securities; Yoon Seok-jin, research fellow at Hana Financial Management Research Institute; Yoon Yeo-sam, research fellow at Meritz Securities; Lim Jae-gyun, senior researcher at KB Securities Asset Allocation Strategy Department; Jung Sung-tae, research fellow at Samsung Securities; Cho Young-moo, research fellow at LG Economic Research Institute; Cho Yong-gu, research fellow at Shin Young Securities; Joo Won, head of Economic Research Office at Hyundai Research Institute; Heo Moon-jong, head of Economic Global Research Office at Woori Financial Management Research Institute