"Rising House Prices Hinder Interest Rate Cuts"... Rate Cuts Expected Only in October [FOMC poll]①

Bank of Korea Scheduled to Hold Monetary Policy Meeting on August 22
Most Economic Experts Expect August Base Rate to Remain Unchanged
Seoul Housing Price Rise Makes Base Rate Cut Difficult
High Possibility of US Rate Cut in September, Korea in October

Economic experts expect that on the 22nd, the Bank of Korea's Monetary Policy Committee (MPC) will hold a meeting to decide the monetary policy direction and keep the base interest rate at an annual 3.5% for the '13th consecutive time.'

With recent housing price increases centered around the Seoul metropolitan area and a rising trend in household debt, it is analyzed that the Bank of Korea will maintain the base interest rate at the current level. Most experts expect the United States to lower its base interest rate next month, and many anticipate that Korea will reduce its base interest rate around October.

"Bank of Korea Likely to Keep Base Rate Steady in August"

According to a survey conducted by Asia Economy from the 12th to the 16th among 21 economic experts including domestic and international bank and economic research institute economists, securities firm researchers, and academia, 18 respondents (86%) predicted that the Bank of Korea will keep the base interest rate unchanged this month. The Bank of Korea has kept the base interest rate steady for 12 consecutive times from February last year to July this year.

Many experts believe that due to concerns over rising housing prices in the Seoul metropolitan area and increasing household debt, the Bank of Korea will not lower the base interest rate immediately.

Heo Ji-su, a senior researcher at Woori Financial Management Research Institute, said, "Considering the recent overheating of the housing market centered around the Seoul metropolitan area, concerns over rising household debt, and the exchange rate remaining at a high level, the Bank of Korea will keep the base interest rate steady in August."

Park Sang-hyun, a specialist at iM Securities, said, "Due to rising apartment prices centered in Seoul and increasing household loans, a rate freeze is expected in August," adding, "The Bank of Korea will lower the base interest rate only when housing prices stabilize."

Kim Sung-soo, a researcher at Hanwha Investment & Securities, also forecasted a freeze, stating, "From the perspective of financial stability, including rising real estate prices, increasing household loans, and exchange rates, there is no urgent need to lower the base interest rate soon."

There was also an assessment that the Korean economy is not currently weak enough to require an immediate base interest rate cut. Jo Young-moo, a research fellow at LG Economic Research Institute, responded, "It seems the Bank of Korea does not judge the economic situation to be poor enough to respond with a rate cut," and added, "The base interest rate will be kept steady this month."

Some Experts Predict Bank of Korea May Preemptively Cut Rates in August

However, some experts predicted that the Bank of Korea might preemptively lower the base interest rate this month ahead of the United States.

Gong Dong-rak, a researcher at Daishin Securities, said, "The consumer price inflation rate has entered the possible range for a rate cut set by the monetary authorities, showing signs of stabilization," and forecasted, "To relieve the burden caused by the fatigue of economic agents due to prolonged high interest rates, the Bank of Korea will lower the base interest rate by 0.25 percentage points this month."

An Jae-gyun, an economist at Shinhan Investment Corp., also predicted a rate cut by the Bank of Korea this month. He diagnosed, "The Bank of Korea secured confidence in price stability through last month's MPC meeting, and with domestic demand weakness confirmed by the second-quarter economic growth rate, there is sufficient justification to advance the timing of the rate cut to August."

Kang Seung-won, a researcher at NH Investment & Securities, emphasized, "With the U.S. rate cut in September becoming a foregone conclusion, if the U.S. unemployment rate rises further, market turmoil will reignite," adding, "If the Bank of Korea keeps rates steady in August, it will face a dilemma of having to wait until October to respond, so a preemptive rate cut in August is possible."

High Probability of U.S. Base Rate Cut in September

Most experts expect the United States to lower the base interest rate at the Federal Open Market Committee (FOMC) meeting next month. Among the 21 respondents, 20 (95%) predicted a U.S. rate cut in September.

Kim Sun-tae, an economist at KB Kookmin Bank, stated, "With the continued decline in inflation and growing concerns about a recession centered on manufacturing in the second half of the year, the U.S. will likely start a slow rate-cutting trend of about once per quarter from next month."

Yoon Yeo-sam, a researcher at Meritz Securities, explained, "The U.S. will lower the base interest rate by 0.25 percentage points in September," adding, "Concerns about a recession have emerged due to weak manufacturing and employment indicators, and financial market volatility has increased due to stock price declines, so the rate cut will be made due to fatigue from prolonged high interest rates."

Jung Sung-tae, a research fellow at Samsung Securities, said, "With progress in U.S. disinflation and considering the normalization of the labor market, a rate cut in September is expected."

There was also an opinion that the U.S. might not cut the base interest rate in September. Kim Jung-sik, an emeritus professor of economics at Yonsei University, said, "Since the U.S. economy is experiencing a soft landing and inflation needs to fall further, there is a possibility that the U.S. will not cut the base interest rate in September."

Most Expect Korea’s Base Rate Cut Timing to Be in October

Among the 21 experts surveyed, 14 (67%) expected Korea’s base interest rate cut to occur in October. Many believe that Korea will lower rates only after the U.S. has done so first.

Joo Won, head of economic research at Hyundai Research Institute, emphasized, "It is difficult for us to lower the base interest rate if the U.S. has not done so first," adding, "If the U.S. cuts rates in September, we will likely lower the base interest rate around October or November."

Lee Jae-hyung, a researcher at Yuanta Securities, said, "Pressure to cut the policy rate on the Bank of Korea is high, but considering household debt and real estate issues, the rate will be kept steady in August," and added, "After observing the U.S. rate cut situation in September, we expect Korea to lower the base interest rate around October."

Regarding the expected number of rate cuts in Korea this year, among the 21 survey participants, 11 (52%) anticipated one cut, and 7 (33%) expected two cuts. For next year, 12 (57%) predicted two cuts, the highest number.

For the U.S., the expected number of rate cuts this year was evenly split between two and three cuts, with 9 respondents (43%) each. The expected number of cuts next year was four, with 11 respondents (52%).