"November Monetary Policy Committee Holds Rates Steady... Expectation of Rate Cut to Be Controlled"

Growth Rate Forecast Maintained, Slight Upward Revision Expected for Inflation Outlook

Lee Chang-yong, Governor of the Bank of Korea, is striking the gavel at the Monetary Policy Committee plenary meeting held on the 19th at the Bank of Korea in Jung-gu, Seoul. Photo by Joint Press Corps

Meritz Securities expects the Monetary Policy Committee (MPC) meeting on the 30th to result in a decision to keep the base interest rate unchanged. However, it is anticipated that the committee will send signals to curb market expectations for a rate cut.

Jina Kim, a researcher at Eugene Investment & Securities, stated, "A unanimous decision to hold the rate steady is expected this time as well," adding, "However, the committee will likely keep the possibility of a rate hike on the table and aim to control the market's pivot (monetary policy shift) expectations."

Researcher Kim analyzed, "It is reasonable to view that the global trend of rate hikes, including in Korea, has now ended," and explained, "Even the Federal Reserve (Fed), which the Bank of Korea closely monitors, has weakened its commitment to further hikes since the November Federal Open Market Committee (FOMC) meeting, making it difficult for the Bank of Korea to strongly assert a rate hike stance."

Nonetheless, it is expected that Lee Chang-yong, Governor of the Bank of Korea, will indicate that the possibility of a rate hike remains depending on circumstances. Researcher Kim predicted, "Knowing that the market will not accept a hike, the Bank of Korea is likely to focus more on statements emphasizing that it is not considering a rate cut in the short term to maximize the warning effect." She further explained, "The Bank of Korea’s objective to maintain high interest rates and observe the tightening effect remains unchanged, and for this purpose, the need to adjust bets on a rate cut within this month has increased."

Recent declines in interest rates are the result of a mix of factors, including oversold rebounds, stabilization of external interest rates, and easing U.S. inflation, rather than changes in domestic fundamentals. The central bank’s goal is not to lower high interest rates but to maintain rates at an appropriate level (considering inflation, debt, etc.) that can sustain the tightening effect. This approach allows the policy effects to be realized as quickly as possible.

Researcher Kim also expects that in the revised economic outlook to be released simultaneously, the growth forecast will be maintained while the inflation forecast may be slightly revised upward. She noted, "Although oil prices have recently stabilized, the average oil price set in the existing economic outlook was somewhat low, which provides a good basis for adjustment," adding, "However, even a 0.1%p upward revision in the inflation forecast would help the Bank of Korea better convey its intention to control rate cut expectations to the market."

Kim forecasted, "Until the December FOMC, the MPC is expected to moderate the pace of domestic interest rate declines," and added, "Since trading volume tends to decrease toward the end of the year, some rebound in recent rate declines is also possible." She concluded, "The short-term rally is expected to have calmed for now, and it will be necessary to consider additional purchases when interest rates rebound."