[Geumtongwi poll] ① "100% for February rate freeze"... Easing rates in the first half unlikely

Bank of Korea Expected to Unanimously Keep February Monetary Policy Rate Unchanged
US Also Expected to Hold March Interest Rate Steady
US Anticipated to Cut Rates in Q2, Korea in Q3
Survey of 20 Economic Experts

Lee Chang-yong, Governor of the Bank of Korea, is presiding over the first Monetary Policy Committee meeting of the new year held at the Bank of Korea in Jung-gu, Seoul, on the morning of the 11th of last month. Photo by Joint Press Corps

The Bank of Korea is expected to keep the base interest rate at 3.5% for the '9th consecutive time' at the Monetary Policy Committee (MPC) meeting scheduled for the 22nd. Experts believe that since the inflation rate still exceeds the target and the domestic economy is rebounding mainly due to exports, there is no urgent reason for the Bank of Korea to lower interest rates.

The delayed timing of the U.S. Federal Reserve's (Fed) interest rate cuts is also cited as a reason why it is difficult for the Bank of Korea to lower its base rate. Experts forecast that the U.S. will cut rates first in the second quarter, and the Bank of Korea will follow with a rate cut in the third quarter.

All 20 Economic Experts Predict "Base Rate Freeze at February MPC"

According to a survey conducted by Asia Economy from the 13th to the 15th among 20 economic experts including domestic and international securities analysts, bank and economic research institute economists, all respondents predicted that the Bank of Korea will keep the base rate at 3.5% at this month's MPC meeting.

Experts assessed that the domestic inflation level is still too high to warrant a rate cut. The Consumer Price Index (CPI) released by Statistics Korea last month rose 2.8% year-on-year, exceeding the Bank of Korea's target of 2%.

Kim Seong-su, a researcher at Hanwha Investment & Securities, said, "Although the gap to the target inflation level has narrowed, the time to reach that level will not be short," adding, "With the macro economy entering a smooth recovery cycle, there is little need for premature policy easing."

Jung Sung-tae, a research fellow at Samsung Securities, evaluated, "The inflation rate still exceeds the target, and Bank of Korea Governor Lee Chang-yong's mention at the January MPC that the possibility of a rate cut is low for the time being will also have an impact."

The expectation that the economy will improve this year, centered on exports, was also cited as a factor delaying a rate cut. Ahn Jae-kyun, an economist at Shinhan Investment Corp., explained, "Considering the favorable export flow and the slower-than-expected domestic demand slowdown, the base rate freeze will continue," adding, "There is a possibility of a rate cut in the third quarter when the contribution of export growth declines."

Kim Seon-tae, an economist at KB Kookmin Bank, said, "Although the inflation rate has entered the 2% range, there is concern that inflation expectations pressure may rise again due to strong economic growth and liquidity centered on the U.S.," and added, "The stance will continue to be cautious, guarding against both upward and downward risks to the rate."

There was also an opinion that the Fed's rate cut should precede. Kang Seung-won, a researcher at NH Investment & Securities, said, "The most critical condition for Korea's rate cut is a signal from the Fed," and predicted, "The Fed is expected to signal a rate cut as early as April or at the latest May, and the rate freeze stance will continue until April."

U.S. Also Expected to Keep Rates Steady in March, Rate Cut Forecast for Q2

All 20 experts agreed that the U.S. Federal Open Market Committee (FOMC) will keep the base rate steady at its meeting next month. Park Jung-woo, an economist at Nomura Securities, said, "As Fed Chair Jerome Powell stated, the strong labor market increases the likelihood of a soft landing, so the Fed is expected to maintain the current monetary policy stance for the time being." Societe Generale (SG) economist Oh Seok-tae emphasized, "Due to strong growth, employment, and persistently high inflation, a rate cut in March seems practically impossible."

Among the 20 experts, 13 forecasted a U.S. rate cut in the second quarter, and 7 predicted a cut in the third quarter. Some experts delayed their rate cut timing compared to last month's forecast, which is interpreted as a result of recently released U.S. inflation data exceeding expectations. Yoon Yeo-sam, a researcher at Meritz Securities, said, "Since the inflation stabilization phase is judged to be around the third quarter, confirmation sentiment will be maintained until the second quarter, and rates will be cut around July," adding, "The annual rate cut is expected to be about 100 basis points (1bp = 0.01 percentage points)."

Ahn Ye-ha, a researcher at Kiwoom Securities, said, "Considering still high inflation levels and favorable labor market conditions, the U.S. rate cut is expected to become visible in the second quarter," and expressed hope that "rates will be cut around the end of the second quarter as the inflation slowdown trend is confirmed."

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed) [Photo by Yonhap News]

U.S. to Cut Rates First, Korea Expected to Cut in Q3

Fifteen experts predicted that Korea will cut the base rate in the third quarter. Four predicted the second quarter, and one predicted the fourth quarter. Woo Hye-young, a researcher at eBest Investment & Securities, forecasted, "In the third quarter, as the inflation rate reaches the mid-2% range and expected inflation falls below 3%, confidence in the inflation direction will increase, making discussions on rate cuts possible." Ahn Jae-kyun, an economist at Shinhan Investment Corp., argued, "The contribution of export growth is expected to decline from the second half, and the slowdown in consumption will lead to reaching the 2% inflation target," adding, "Considering the Bank of Korea's monetary policy support following the start of real estate project financing (PF) cleanup after the general election, rate cuts will be explored from the third quarter."

Moon Hong-cheol, a researcher at DB Financial Investment who predicted a rate cut in the second quarter, said, "Due to the severe domestic demand recession and concerns about the real estate market, the Bank of Korea will cut the base rate in the second quarter to prepare countermeasures for real estate PF and economic response plans." Baek Yoon-min, a researcher at Kyobo Securities, also said, "Considering only internal factors, an earlier rate cut is not impossible, but considering the timing of monetary policies of major central banks, a rate cut in the second quarter is expected."

Jo Young-moo, a research fellow at LG Economic Research Institute who uniquely predicted a rate cut in the fourth quarter, said, "Considering the inflation burden, ongoing household debt concerns, and the Bank of Korea's economic recovery outlook this year, a base rate cut is forecasted in the fourth quarter."

Experts Responding to Asia Economy's MPC Poll (20 people)

Kang Seung-won (NH Investment & Securities researcher), Gong Dong-rak (Daishin Securities researcher), Kim Seon-tae (KB Kookmin Bank economist), Kim Seong-su (Hanwha Investment & Securities researcher), Kim Sang-hoon (Hana Securities researcher), Kim Ji-na (Eugene Investment & Securities researcher), Moon Hong-cheol (DB Financial Investment researcher), Park Sang-hyun (Hi Investment & Securities researcher), Park Seok-gil (J.P. Morgan economist), Park Jung-woo (Nomura Securities economist), Baek Yoon-min (Kyobo Securities researcher), Ahn Ye-ha (Kiwoom Securities researcher), Ahn Jae-kyun (Shinhan Investment Corp. economist), Oh Seok-tae (Societe Generale (SG) economist), Woo Hye-young (eBest Investment & Securities researcher), Yoon Yeo-sam (Meritz Securities researcher), Jung Sung-tae (Samsung Securities research fellow), Jo Young-moo (LG Economic Research Institute research fellow), Jo Yong-gu (Shinyoung Securities research fellow), Heo Ji-soo (Woori Financial Research Institute senior researcher)