[금통위poll]② Interest Rate Cut, Q4 This Year vs Q1 Next Year 'Neck and Neck'

Maximum Variable Consumer Prices... Monitoring Core and Service Prices

Experts have effectively concluded that both South Korea and the United States have reached the peak of their interest rate hike cycles as of this month, and are now turning their attention to the timing of future rate cuts. However, opinions among experts diverged regarding the timing of these rate cuts. While the majority expect rate cuts to begin in the first quarter of next year in both South Korea and the U.S., there is also strong contention that rate cuts could start as early as the fourth quarter of this year.

On the 19th, Asia Economy conducted a survey of 20 analysts from domestic and international securities firms, as well as researchers from banks and economic research institutes. Nine respondents predicted that both South Korea and the U.S. would implement rate cuts in the first quarter of next year. Meanwhile, seven respondents each believed that rate cuts would begin in the fourth quarter of this year for South Korea and the U.S., respectively.

Yoon Yeo-sam, a researcher at Meritz Securities, stated, "Currently, policymakers are controlling expectations for 'rate cuts within the year.' While it is necessary to confirm the path of expected inflation and further price stabilization, financial instability caused by excessive tightening still lingers. If the price stabilization path is confirmed within this year, easing could be possible by the end of this year or early next year." Seven experts expressed the view that South Korea would cut rates before the U.S. Moon Hong-chul, a researcher at DB Investment & Securities, noted, "Emerging markets typically initiate rate cuts first. Given that South Korea's economic situation is not better than that of the U.S., South Korea could begin rate cuts in the third quarter of this year ahead of the U.S."

Thirteen experts identified consumer prices as the biggest variable for future monetary policy. Kim Ji-na, a researcher at Eugene Investment & Securities, said, "The trend of commodity prices and inflationary pressures resulting from China's reopening (resumption of economic activities) will be key variables going forward."

Particularly, attention is expected to increase on the pace of decline in core inflation (excluding food and energy prices) within the consumer price index. Ahn Ye-ha, a researcher at Kiwoom Securities, pointed out, "Consumer prices are gradually stabilizing, but upward pressure on service prices due to public utility rate hikes remains." The government's increase in electricity and gas rates as of the 16th could also stimulate inflation. Kang Min-joo, chief economist at ING, said, "Although consumer prices are slowing down, risks remain due to public utility rate hikes, so even if the Bank of Korea holds rates steady, it is expected to maintain a hawkish stance." Kang Seung-won, a researcher at NH Investment & Securities, also forecasted, "While the economy and financial stability already support rate cuts, the timing of rate cuts will be when declines in service prices and core inflation become clear."

The second major variable cited was economic growth rate. Ahn Jae-gyun, a researcher at Shinhan Investment Corp., said, "If the possibility of annual growth in the low 1% range or even zero percent increases, growth will become a significant factor in future monetary policy." Additionally, opinions were expressed that issues related to financial stability connected to interest rates, such as exchange rates, the IT sector, and real estate project financing (PF), cannot be overlooked.

Furthermore, one of the key points to watch at this month's Monetary Policy Committee meeting is the addition of new members Jang Yong-sung and Park Chun-seop. Kim Sang-hoon, a researcher at Hana Securities, added, "With uncertainties still remaining regarding export conditions and the U.S. terminal interest rate, the replacement of two Monetary Policy Committee members could lead to a variety of views on the timing of future rate cuts."

Experts Responding to Asia Economy's Monetary Policy Committee Poll

Kang Min-joo, Economist at ING Bank; Kang Seung-won, Researcher at NH Investment & Securities FICC 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-chul, 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; Jung Sung-tae, Research Fellow at Samsung Securities; Jo Yong-gu, Research Fellow at Shin Young Securities; Joo Won, Head of Economic Research at Hyundai Research Institute; Heo Moon-jong, Head of Global Economic Research at Woori Financial Management Research Institute; Hong Chun-wook, CEO of Prism Investment Advisory