[Geumtongwi poll] ② "Pivot possible only after confirming inflation slowdown"... Increasing impact of sluggish domestic demand on economy

"Inflation Rate 2.6%, Economic Growth Rate 2.1%"
Expected to Align with BOK Forecast
"Domestic Consumption Slump to Have Major Impact"
Last Mile and US Interest Rates to Influence Monetary Policy

As the last mile of inflation (the final stretch to the target) lengthens and expectations for an early interest rate cut in the United States are virtually blocked, experts maintained the view that these two variables will determine the turning point of South Korea's monetary policy this month as well as last month. They forecast that this year's economic growth rate will align with the Bank of Korea's November projection, anticipating continued domestic demand sluggishness despite improvements in exports. Since no new variables have emerged clearly, many also believed that the inflation rate would not deviate from the forecast.

According to a survey conducted by Asia Economy from the 13th to the 15th among 20 experts including economists from economic research institutes and analysts from domestic and foreign securities firms, the majority of respondents (11 people) answered that a clear slowdown in consumer prices and international oil prices must occur before a base interest rate cut becomes possible (overlapping responses included). Following this, as in the survey conducted before the January monetary policy meeting, the timing of the U.S. interest rate cut (8 people) was the next most cited factor.

This is because inflation uncertainty due to geopolitical risks remains, and concerns are growing that the Federal Reserve's rate cut timing may be postponed. The market expects that South Korea's rate cut will be unlikely to precede that of the U.S.

Researcher Jo Yong-gu of Shin Young Securities explained, "Only after the Fed cuts rates will the Bank of Korea passively join in rate cuts to narrow the Korea-U.S. interest rate gap," adding, "Among real indicators, inflation indicators are the most important, with international oil prices and exchange rates being the key variables."

Additionally, three experts each cited real estate market conditions and economic growth rates. Researcher Kim Ji-na of Eugene Investment & Securities, who pointed to the real estate market as a domestic factor, mentioned the recent project financing (PF) insolvency issues in the real estate sector, saying, "Depending on the trend and outcome of PF restructuring, it could affect real estate sentiment, prices, construction industry conditions, and even consumer sentiment." Considering the sluggish construction market, this implies a high possibility of pressure to shift toward monetary easing.

Bank of Korea Maintains Inflation and Economic Growth Forecasts Amid Domestic Demand Slump

Regarding this year's inflation rate, which will be revised and announced on the 22nd, seven respondents forecast the same 2.6% as the Bank of Korea's November projection. At that time, the Bank of Korea raised the forecast by 0.2 percentage points from 2.4% in August, citing "accumulated cost-push pressures, concentrated public utility fee hikes since August last year, and additional supply shocks such as the Middle East crisis, which led to price increases in some products."

Experts who maintained the forecast pointed to the stabilization of raw material prices such as international oil prices and weakened consumer sentiment due to sluggish domestic demand. Researcher Moon said, "International oil prices have fluctuated at somewhat lower levels than previously expected, so downward factors seem slightly dominant, but the exchange rate has been higher than expected, partially offsetting this. We expect to see inflation in the high 2% range in the first quarter, mid-to-high 2% range in the second quarter, and low 2% range from August onward."

Seven experts perceived strong downward pressure and predicted a lower inflation rate of 2.4?2.5% than the forecast. Heo Ji-soo, senior researcher at Woori Financial Research Institute, who answered 2.5%, added, "The prolonged high interest rates will suppress demand, service price strength will ease, and the decline in petroleum products will slow the inflation rise."

Regarding this year's economic growth rate, six respondents forecasted the same 2.1% as the Bank of Korea's November projection, which reflects a 0.1 percentage point downward revision from the previous forecast due to expectations of weaker domestic consumption momentum despite export recovery. Researcher Baek Yoon-min of Kyobo Securities said, "Although uncertainties in external variables remain high, the base scenario assumes a soft landing for the economy this year, and there are limited factors that could cause significant changes to the current forecast."