[Geumtongwi poll] ① Freeze 100%... Han Factually Ends Interest Rate Hike

Survey of 21 Market and Economic Experts

The Bank of Korea is expected to keep the base interest rate steady at 3.5% annually at the Monetary Policy Committee meeting scheduled for the 11th, with this forecast reaching 100%. Experts also unanimously predict that the base rate will remain at 3.5% at the next meeting on the 25th of next month, indicating that the rate hike cycle that has been ongoing for a year and a half since August 2021 is effectively coming to an end.

Among experts, 100% responded that the Bank of Korea's final rate will also be 3.5%, forming a consensus that there will be no further tightening moves after the 0.25 percentage point increase in January.

April Monetary Policy Committee Meeting: 100% Forecast for 3.5% Rate Hold

On the 5th, Asia Economy conducted a survey of 21 analysts from domestic and international securities firms, banks, and economic research institutes. All respondents predicted that the base interest rate would be held at 3.5% at this month's Monetary Policy Committee meeting. Not a single expert forecasted a rate hike, making the outlook for a rate hold overwhelming.

The consumer price inflation rate in March dropped to 4.2%, the lowest in a year and a half, falling into the low 4% range. This easing inflation trend, coupled with growing concerns about an economic recession, likely increased the burden against further tightening. Particularly, the crises involving the U.S. Silicon Valley Bank (SVB) and Swiss investment bank Credit Suisse (CS) expanded uncertainty in international financial markets, which also supported the case for holding rates steady. The three factors of 'slowing inflation, economic recession, and financial market instability' are shifting the focus of domestic monetary policy rapidly from inflation control to economic and financial stability.

Monetary Policy Focus Shifts from Inflation Control to Economic and Financial Stability

If the base rate is held at this month's meeting, it will mark the second consecutive hold since February. After the 0.25 percentage point hike in January, the rate has remained steady. Previously, the Bank of Korea lowered the base rate by 0.50 percentage points in March 2020 amid expected economic recession due to COVID-19, and further reduced it to a historic low of 0.50% by May of the same year. After nine consecutive holds, the Bank began raising rates again in August 2021, increasing the base rate by 3.00 percentage points to 3.5% by January. In February, the rate was held steady, halting the year-and-a-half-long rate hike streak.

With just five days left before the April Monetary Policy Committee meeting, the market has already largely accepted the rate hold as a given. Baek Yoon-min, a researcher at Kyobo Securities, said, "Although the February meeting left room for additional hikes within the year, I believe the domestic rate hike cycle has effectively ended. The recent slowdown in consumer price inflation has reduced the necessity for the Bank of Korea to mechanically respond with monetary tightening, and the series of global bank risks such as SVB have eased expectations for further rate hikes by the U.S. Federal Reserve (Fed)." He added that "the combination of easing inflationary pressures, recession concerns, and overseas bank-related financial instability leads to the expectation that the base rate will be held at 3.50% this month." Heo Moon-jong, head of the Economic Global Research Office at Woori Financial Research Institute, also forecasted, "Considering the easing inflationary pressures, economic slowdown concerns, and overseas bank-related financial instability, the Monetary Policy Committee will hold the base rate at 3.50% this month."

Some expect that while the majority of the committee will decide to hold rates, there may be a minority opinion advocating for a hike. Gong Dong-rak, a researcher at Daishin Securities, said, "There may be one dissenting opinion calling for a 0.25 percentage point hike due to concerns over inflation levels exceeding the target. However, since Korea's inflation is more stable compared to other countries and both goods and services prices are trending downward, while export and other economic indicators uniformly point to economic slowdown, the base rate is expected to be held." He explained that Korea started its rate hike cycle earlier than other countries and that the initial purpose of the hikes?to stabilize the financial system and address household debt issues?has already shown effects, supporting the decision to hold rates.

100% Forecast for Base Rate Hold at May Monetary Policy Committee Meeting

Following April, all 21 respondents also forecast a hold on the base rate at the Monetary Policy Committee meeting scheduled for the 25th of next month. Ahn Jae-gyun, a researcher at Shinhan Investment Corp., said, "Considering that first-quarter growth is likely to fall short due to simultaneous weakness in exports and consumption, and that international oil prices are expected to remain below $90 per barrel, inflation is expected to continue slowing, so the base rate will likely be held in May as well."

All 21 respondents also expect the final rate to remain at 3.5%, the current level. The market views this as an indication that the rate hike cycle is entering its final phase. Woo Hye-young, a researcher at eBest Investment & Securities, said, "The Bank of Korea's inflation forecast path mentioned at the February meeting was around 5% in February, low 4% in March, and low 3% by year-end. Actual consumer price inflation was 4.8% in February and 4.2% in March, slightly below the forecast path. The U.S. Fed's final rate is also expected to be 5.25% due to bank issues like SVB and CS, meaning only one more hike remains before reaching the final rate, reducing the need for further hikes by the Bank of Korea."

67% Forecast Base Rate Hold Through Year-End... 29% Expect 0.25% Cut

When asked about the rate outlook for the end of this year, 67% (14 respondents) predicted the current level of 3.50%. Six respondents expected a 0.25 percentage point cut to 3.25%, and one respondent anticipated a 0.50 percentage point cut to 3.00%. Kim Sun-tae, a researcher at KB Kookmin Bank, said, "There are mixed factors of upward pressure from residual inflation and downward pressure from banking risks, but these factors are unlikely to be strong enough to move the base rate significantly by year-end." Yoon Seok-jin, a researcher at Hana Financial Research Institute, also judged, "Considering the renewed rise in international oil prices due to production cuts by OPEC+ member countries, including Russia and other non-OPEC major oil producers, and the slow decline in domestic core inflation, there is a high need to maintain the current base rate for the time being."

However, some expressed views that sharp stabilization of inflation and concerns over global economic slowdown could lead to rate cuts in the second half of the year. Yoon Yeo-sam, a researcher at Meritz Securities, said, "If consumer price inflation falls below the mid-3% range by the second quarter and core inflation also shows a downward trend, market expectations for a rate cut within the year could increase." Moon Hong-chul, a researcher at DB Financial Investment, added, "The government’s efforts to revive the economy and real estate measures will lead to rate cuts. After two cuts in the second half, the base rate is expected to fall to 3.0% by year-end."

Experts Responding to Asia Economy's Monetary Policy Committee Poll

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