"July Freeze" 100%... "August Cut" 40% [Geumtongwi poll] ①

Bank of Korea's Monetary Policy Committee Meeting on the 11th Expected to Keep Base Rate Steady
Experts Forecast Base Rate Cut in August or October
US Expected to Cut Base Rate in September

Economic experts expect the Bank of Korea's Monetary Policy Board meeting on the 11th to keep the base interest rate steady at 3.5% for the '12th consecutive time.' Although inflation appears to be stabilizing, uncertainties remain regarding the U.S. monetary policy direction and the won-dollar exchange rate.

However, opinions that the Bank of Korea may lower the base interest rate next month have increased compared to the previous survey. There is also a growing expectation that a minority opinion for a rate cut will emerge at this month's Monetary Policy Board meeting. The prevailing forecast is that the U.S. will lower its base interest rate in September.

Survey of 20 Economic Experts: 100% Probability of Rate Freeze This Month

On the 8th, Asia Economy conducted a survey from the 1st to the 5th of this month 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 will keep the base interest rate at 3.5% during this month's Monetary Policy Board meeting. The Bank of Korea has maintained the base interest rate unchanged for 11 consecutive times from February last year to May this year.

Experts believe that although inflation has recently stabilized, the expected inflation level remains high, and uncertainties about the U.S. monetary policy direction are significant, so the Bank of Korea will likely keep the base interest rate steady this month.

Jung Sung-tae, Senior Research Fellow at Samsung Securities, explained, "The Bank of Korea is highly likely to keep the base interest rate unchanged this month. Although the economy and inflation are slowing down, caution regarding the U.S. Federal Reserve's monetary policy will play a major role."

Ahn Jae-kyun, Researcher at Shinhan Investment Corp., said, "Considering the expected inflation rate in the 3% range for about two years, the base interest rate will be frozen this month. We expect hints of a rate cut within the year to become more concrete at the August Monetary Policy Board meeting."

Cho Young-moo, Research Fellow at LG Economic Research Institute, stated, "The financial market expects the Bank of Korea to cut the base interest rate, but since inflation instability has not been resolved, the Bank of Korea will likely judge that there is no strong need for a rate cut."

Rate Cut Expected in August or October

Experts are certain that the base interest rate will remain unchanged this month but expect the Bank of Korea to lower it next month or in October. There will be no Monetary Policy Board meeting in September.

Among the 20 survey participants, 11 responded that the timing of the Bank of Korea's rate cut would be in the fourth quarter (October or November), which is still more than the 8 who said it would be in August. One participant did not respond. The proportion expecting a rate cut in August increased from 26% in the May survey to 40% in this survey.

This is because the consumer price index rose by 2.4% year-on-year last month, marking the lowest increase in 11 months since July last year. As the downward stabilization of inflation became clearer, market expectations for a Bank of Korea rate cut grew. Bank of Korea Governor Lee Chang-yong said at a meeting after deciding to keep the base rate steady on May 23, "If the inflation rate in the second half of the year is confirmed to be trending down to 2.3-2.4%, we can consider a rate cut."

August Cut: "Early 2% Inflation Stability + Domestic Demand Slump"

If a minority opinion for a rate cut emerges at this month's Monetary Policy Board meeting, the possibility of a rate cut in August is expected to increase. In the survey, 10 experts predicted a minority opinion for a rate cut this month, and 4 predicted it for next month. Four respondents said July or August, meaning all experts except two non-respondents expect a minority opinion for a rate cut during the third quarter.

Gong Dong-rak, Researcher at Daishin Securities, said, "The recently compiled consumer price inflation rate has entered the range that the monetary authorities set as a prerequisite for a rate cut, and the inflation path is increasingly likely to approach the target. A minority opinion for a cut will appear in July, and a base rate cut is possible in August."

Park Sang-hyun, Research Fellow at Hi Investment & Securities, emphasized, "If the inflation stability in the early 2% range continues, the Bank of Korea can sufficiently lower the base interest rate in August."

There is also a forecast that the Bank of Korea will cut the base interest rate in August to overcome the domestic demand slump. Moon Hong-chul, Researcher at DB Financial Investment, who predicts an August cut, said, "The domestic economy is very sluggish, mainly driven by domestic demand, and exports are unstable with semiconductors running alone. Especially, global inflation is rapidly stabilizing, so the environment for an accommodative monetary policy has been established."

Baek Yoon-min, Senior Research Fellow at Kyobo Securities, said, "A minority opinion for a rate cut will appear in July, and a cut will be made in August. Uncertainty about growth is high, and the need for policy responses to mitigate financial stability risks such as real estate project financing (PF) is increasing."

Fourth Quarter Cut: "Exchange Rate Nearing 1,400 Won, U.S. Must Cut First"

Eleven experts also said the base interest rate would be cut in October or November rather than August. Kim Sun-tae, Economist at KB Kookmin Bank, said, "Although inflation is declining, the exchange rate is approaching 1,400 won, and a preemptive rate cut could increase the risk of further exchange rate rises and capital outflows. The Bank of Korea will cut rates after confirming that the U.S. has lowered its base rate."

Yoon Yeo-sam, Researcher at Meritz Securities, also emphasized, "The freeze stance will be maintained until the August Monetary Policy Board meeting, including confirmation of the timing of the U.S. rate cut. The second-quarter growth rate, to be confirmed at the end of July, is expected to show a negative quarter-on-quarter figure, and the August consumer price index, to be confirmed in early September, is expected to stabilize around 2% on a headline basis. After confirming this, a rate cut in October is highly likely."

Majority Expect U.S. Rate Cut in September

The majority of experts expect the U.S. Federal Open Market Committee (FOMC) to lower the base interest rate in September. In the survey, 17 experts (85%) predicted a U.S. rate cut in September (Q3). The remaining respondents predicted Q4 (1), Q1 next year (1), and one did not respond.

Kang Seung-won, Researcher at NH Investment & Securities, said, "U.S. consumption slowdown is continuing in Q3, and after signaling a rate cut in July, the Fed is expected to lower the base interest rate in September."

Woo Hye-young, Researcher at LS Securities, said, "The Fed is expected to cut the base interest rate in September after confirming the downward trend in core inflation (super core, etc.) and the slowdown in employment."

Experts Responding to Asia Economy's Monetary Policy Board Poll (20 Experts)

Kang Seung-won (NH Investment & Securities), Gong Dong-rak (Daishin Securities), Kim Myung-sil (Hi Investment & Securities), Kim Sun-tae (KB Kookmin Bank), Kim Sung-soo (Hanwha Investment & Securities), Kim Sang-hoon (Hana Securities), Moon Hong-chul (DB Financial Investment), Park Sang-hyun (Hi Investment & Securities), Park Seok-gil (JP Morgan), Baek Yoon-min (Kyobo Securities), Ahn Ye-ha (Kiwoom Securities), Ahn Jae-kyun (Shinhan Investment Corp.), Oh Seok-tae (Soci?t? G?n?rale (SG)), Woo Hye-young (LS Securities), Yoon Yeo-sam (Meritz Securities), Lee Jae-hyung (Yuanta Securities), Jung Sung-tae (Samsung Securities), Cho Young-moo (LG Economic Research Institute), Cho Yong-gu (Shinyoung Securities), Heo Moon-jong (Woori Financial Research Institute, Head of Economic and Financial Market Research).