[Geumtongwi poll] ① Base Interest Rate Cut Possible Only in Q4

All 20 Economic Experts Forecast Bank of Korea to Hold May Base Rate
All Expect US to Hold June Base Rate
Many Experts Predict US Rate Cut in Q3, Korea Rate Cut in Q4

Economic experts expect the Bank of Korea's Monetary Policy Committee (MPC) to keep the base interest rate unchanged at 3.5% for the '11th consecutive time' at its meeting on the 23rd.

This assessment is based on the fact that inflation remains high and the first quarter economic growth rate exceeded expectations, reducing the need for a rapid rate cut. Many also expressed concerns about lowering the base rate before the United States does.

In last month's survey regarding the expected timing of a rate cut, most respondents anticipated the US would lower rates in Q2, but this month the expectation shifted to Q3, while for Korea it moved from Q3 to Q4.

On the 12th of last month, the Monetary Policy Direction Decision Meeting of the Financial Monetary Committee was held at the Bank of Korea in Jung-gu, Seoul. Photo by Joint Press Corps

Economy Better Than Expected and High Inflation Burden Likely to Keep Rates Steady Through July Following May

On the 20th, Asia Economy conducted a survey from the 13th to the 17th targeting 20 economic experts including economists from domestic and international banks, economic research institutes, and securities firms. All respondents predicted that the Bank of Korea's MPC would keep the base rate at 3.5% this month. The Bank of Korea has maintained the base rate unchanged for 10 consecutive times from February last year through last month.

Experts diagnosed that the first quarter economic growth rate was better than expected and inflation remains high, so there is no reason to cut the base rate this month. The first quarter economic growth rate was 1.3% quarter-on-quarter, and consumer prices rose 2.9% year-on-year last month, significantly exceeding the Bank of Korea's inflation target of 2%.

Jung Sung-tae, a research fellow at Samsung Securities, said, "South Korea's first quarter economic growth rate exceeded expectations, and the US Federal Reserve's rate cut is being delayed," adding, "We expect the Bank of Korea to keep the base rate steady not only in May but also in July."

Ahn Jae-kyun, an economist at Shinhan Investment Corp., explained, "With a solid first quarter GDP, the overall economic growth forecast for this year has been revised upward, and the need for a rate cut within three months has weakened compared to the beginning of the year."

Kim Sun-tae, an economist at KB Kookmin Bank, said, "The biggest variable for future domestic monetary policy shifts is consumer inflation," adding, "Since this is a stage to determine a normalizing interest rate level rather than controlling the real economy, if consumer inflation stabilizes in the low to mid 2% range, a rate cut will be implemented."

There is also analysis that lowering the base rate ahead of the US would be burdensome. Many expect that if the US cuts rates around Q3, Korea will follow with a cut in Q4.

Joo Won, head of economic research at Hyundai Research Institute, said, "In the current financial environment, it is difficult for Korea to cut rates before the US," adding, "The US is expected to cut rates as early as September, while Korea is expected to do so around October." Kim Sang-hoon, a researcher at Hana Securities, emphasized, "The biggest variable for domestic monetary policy going forward is the timing of the US rate cut, as various factors such as international oil prices and exchange rates are reflected in the timing of the cut."

US Also Expected to Keep Rates 100% Steady in June

Experts also forecast that the US Federal Reserve will keep the base interest rate unchanged at the Federal Open Market Committee (FOMC) meeting next month due to persistent high inflation.

Kim Sung-soo, a researcher at Hanwha Investment & Securities, said, "Inflation is not dropping easily, and the Fed has repeatedly stated that the timing of rate cuts will be delayed," diagnosing, "Rates will be kept steady in June."

Woo Hye-young, a researcher at Ebest Investment & Securities, also emphasized, "Due to high uncertainty regarding the direction of inflation, a unanimous decision to keep rates steady in June is expected."

Oh Seok-tae, an economist at SG Securities, evaluated, "It is too early for the US to cut rates in June because inflation remains high and inflation outlook is still unstable."

US Expected to Cut Rates in Q3, Korea in Q4

Among the 20 experts surveyed, 65%, or 13 people, expected Korea to cut the base rate in Q4 this year. This is a significant increase compared to last month's survey, where only one expert anticipated a Q4 rate cut. Last month, 18 experts expected a cut in Q3, but the outlook has shifted later.

This is closely related to the delayed timing of the US rate cut. Among the 20 experts, those who expected the US rate cut in Q3 increased from 8 in last month's survey to 16 this month.

Yoon Yeo-sam, a researcher at Meritz Securities, said, "The US is expected to need to cut rates around September due to credit conditions tightening from sustained high rates after inflation stabilizes," adding, "It seems natural for Korea to cut rates around October following the US rate cut."

Park Chun-sung, head of macroeconomic research at the Korea Institute of Finance, said, "The US may cut rates around September as inflation and employment indicators stabilize," adding, "Korea is expected to cut rates around October after confirming this."

There were also minority opinions that Korea might cut rates before the US. Baek Yoon-min, a research fellow at Kyobo Securities, said, "The US needs to confirm minimum fundamental conditions for a rate cut, so it is expected to cut rates around September," but added, "Korea's inflation burden is not as large and there are downside risks to the economy, so Korea could cut rates earlier in August."

Park Sang-hyun, a senior advisor at Hi Investment & Securities, also predicted, "With inflation slowing and a trend of monetary policy decoupling, Korea could cut the base rate ahead of the US around August."