Interest Rate Cuts Expected 3-4 Times in Korea, 6 Times in US by End of Next Year [Financial Policy Committee poll]②

Survey of 20 Economic Experts
Half of 20 Cite "US Rate Cut Timing and Exchange Rate" as Biggest Variables
Interest Rate Cuts This Year: Korea 1-2 Times, US 2 Times
Next Year Rate Cuts: Korea 2 Times, US 4 Times
Biggest Future Variable for Rate Cuts... "US Cut Timing and Exchange Rate"

Economic experts forecast that the biggest variables in determining the timing of future base rate cuts will be the 'timing of the US rate cuts' and the 'exchange rate.'

Recently, the strong dollar has caused the Korean won to weaken, making it burdensome for Korea to lower interest rates before the US. Domestic factors such as consumer prices, domestic demand recession, and real estate market conditions are also expected to act as variables influencing the direction of monetary policy.

All experts agreed that the number of base rate cuts in Korea this year will be one or two times. The dominant forecast was that the US will cut rates twice.

Many expected that next year Korea will cut its base rate twice, while the US will do so four times.

The Biggest Variables in Future Monetary Policy... 'US Rate Cut Timing and Exchange Rate'

On the 8th, Asia Economy conducted a survey from the 1st to the 5th among 20 economic experts, including economists from domestic and international banks, economic research institutes, and securities firms. More than half of the respondents identified the biggest variables (multiple answers allowed) determining future domestic monetary policy as the timing of the US rate cuts (11 people) and the exchange rate (10 people).

The reason external factors such as the timing of US rate cuts and exchange rates were cited as the biggest variables is due to the recent continuation of won weakness amid a strong dollar. Ahn Yeha, a researcher at Kiwoom Securities, evaluated, "The expectation of a rate cut by the US Federal Reserve (Fed) needs to spread for the exchange rate to stabilize somewhat and for conditions to be created for a rate cut." Baek Yunmin, senior researcher at Kyobo Securities, said, "Considering domestic factors, the Bank of Korea (BOK) may proactively shift its monetary policy," but added, "If the Fed's monetary policy shift is delayed for a considerable period or if the exchange rate shows a sharp rise, it will be difficult to continue a monetary easing stance."

Jo Yonggu, a researcher at Shin Young Securities, said, "Considering the Korea-US interest rate differential, the BOK will only join a passive rate cut after the Fed's rate cut decision is made." Kim Seontae, an economist at KB Kookmin Bank, also explained, "As Korea is a small open economy, it is necessary to consider the exchange rate and capital flows."

There were also many opinions that domestic factors such as consumer prices (4 people), domestic demand recession (4 people), and real estate market conditions (3 people) will be the biggest variables. Kim Seongsu, a researcher at Hanwha Investment & Securities, said, "Due to the decline in loan interest rates and improvement in consumer sentiment, domestic demand is likely to improve in the second half," but added, "If the sluggish trend continues, the possibility of additional rate cuts will inevitably increase."

Woo Hyeyoung, a researcher at LS Securities, said, "Until the Monetary Policy Committee meeting in July, the exchange rate is the biggest risk factor," adding, "After that, the focus may shift to domestic demand recession." Lee Jaehyung, a researcher at Yuanta Securities, explained, "Depending on the trends in domestic and advanced countries' real estate markets, there is a possibility that instability factors in the related financial system may emerge."

Some experts also said that the US presidential election results could be the biggest variable. Yoon Yeosam, a researcher at Meritz Securities, said, "If Trump is elected in the US presidential election, US interest rates may rise and there could be inflation risks," adding, "If the dollar strengthens further, it could become a significant constraint on domestic monetary easing."

Expected Number of Rate Cuts This Year: Korea 1-2 Times · US 2 Times... Next Year: Korea 2 Times · US 4 Times

Many expected Korea to cut its base rate once or twice this year, and the US twice. Among 18 respondents (excluding 2 multiple answers), half answered that Korea's rate cuts this year would be once (9 people), and the other half answered twice (9 people). The 2 respondents who gave multiple answers (others) also forecasted 1-2 times. Regarding the number of US rate cuts this year, 13 out of 19 respondents (excluding 1 non-response) expected two cuts.

Next year, many expected Korea to cut rates twice and the US four times. Among 20 respondents, half forecasted that Korea's base rate cuts next year would be twice (10 people). Regarding the US base rate cuts, about half of 19 respondents (excluding 1 non-response) expected four cuts (9 people). Some forecasted two times (4 people), three times (3 people), and eight times (1 person).