[Geumtongwi poll] ② The Biggest Future Monetary Policy Variable is 'Household Debt'

Bank of Korea to Hold Monetary Policy Meeting on 11th
Survey of 20 Economic Experts

The Bank of Korea is expected to delay the base interest rate cut to November at the monetary policy direction decision meeting on the 11th, primarily due to concerns over household debt. The future scale and pace of interest rate cuts are anticipated to be influenced by domestic variables such as housing prices and household debt trends, as well as external variables including the possibility of additional rate cuts in the United States and international oil prices.

According to a survey conducted by Asia Economy from the 30th of last month to the 4th of this month targeting 20 economic experts including domestic and international bank and economic research institute economists and securities firm researchers, 65% of the experts (13 out of 20, including multiple responses and one non-response) identified 'household debt increase' as the biggest variable for future monetary policy. Additionally, 45% (9 experts) pointed to the trend of 'rising housing prices in the Seoul metropolitan area,' a factor contributing to household debt increase, as a major variable in monetary policy.

The majority of experts assessed that conditions for interest rate cuts have been established, except for financial stability issues such as household debt. Baek Yun-min, a researcher at Kyobo Securities, explained, "The fundamentals of the Korean economy and external variables support a base interest rate cut. However, financial imbalance risks such as household debt are factors hindering the rate cut."

Ahn Jae-gyun, a researcher at Shinhan Investment Corp., evaluated that "the rise in housing prices in the Seoul metropolitan area and the increasing trend of household debt continue to act as persistent obstacles in the Bank of Korea's interest rate cut cycle."

Experts forecast that the trends in housing prices and household debt, centered on the Seoul metropolitan area, will regulate the future scale and pace of interest rate cuts. Kim Sung-soo, a researcher at Hanwha Investment & Securities, said, "Except for the financial stability sector, most factors support a base interest rate cut. The flow of real estate prices and household debt will determine the future path of cuts."

Park Sang-hyun, a researcher at iM Securities, also explained, "The resolution of financial stability risks will determine the future scale and pace of the Bank of Korea's interest rate cuts."

External Variables Such as Additional US Rate Cuts and International Oil Prices Are Also Important

Opinions that monetary policy could change depending on external variables such as the possibility of additional US rate cuts and international oil prices due to geopolitical risks in the Middle East were also common, with five and four experts respectively (multiple responses).

Ahn Ye-ha, a researcher at Kiwoom Securities, said, "The assessment of the scale of additional US rate cuts is expected to influence expectations for the Bank of Korea's cuts. The recent surge in international oil prices due to Middle East risks will also be important depending on whether it triggers inflation risks again."

Jo Yong-gu, a researcher at Shin Young Securities, diagnosed, "The Bank of Korea will only passively join rate cuts after the US Federal Reserve's (Fed) rate cut decisions to reduce the Korea-US interest rate gap. Among real indicators, inflation is the most important."

Some experts also cited domestic factors such as economic growth rate (3 experts), domestic demand (2 experts), and inflation conditions (2 experts) as variables for future monetary policy. Gong Dong-rak, a researcher at Daishin Securities, evaluated, "The Bank of Korea will set the monetary policy stance by confirming inflation conditions and then adjust the speed or intensity considering economic or real estate issues." Joo Won, head of economic research at Hyundai Research Institute, explained, "Because concerns about the economy are so large, domestic demand weakness will inevitably be considered in monetary policy."

Kang Seung-won, a researcher at NH Investment & Securities, said, "The Bank of Korea is transferring the baton of solving real estate issues to the government. After cutting rates at the October Monetary Policy Committee meeting, the Bank of Korea's core policy criteria will return to economic growth rate and inflation."

US Recession Possibility 'Limited'... Closer to Slowdown

Most experts evaluated the possibility of a US recession, which surfaced recently due to the big cut (0.5 percentage point cut), as 'limited.' Researcher Gong said, "Despite the big cut, the nature of the rate cut from the perspective of normalization remains valid. Since it is not a rate cut responding to a sharp economic contraction, the financial market is also maintaining a stable trend."

Researcher Jo forecasted, "The likelihood of the US real economy entering a recession is low. The labor market is somewhat sluggish but close to a normalization path, and manufacturing and consumption are expected to gradually recover from sluggishness as the Fed undertakes a total of 2 percentage points of rate cuts this year and next."

Jung Sung-tae, a researcher at Samsung Securities, evaluated, "Among the six major indicators used by the National Bureau of Economic Research (NBER) to assess economic conditions, employment and consumption are expanding, and the rest are stable. When defining a recession as a clear slowdown in economic activity, the current possibility of recession is low."

There was also an assessment that the US economy is closer to a slowdown than a recession. Heo Jeong-in, a researcher at Daol Investment & Securities, said, "The US economy is still supported by robust private consumption, so a moderate slowdown is expected. Even if the unemployment rate rises moderately in the future, it will not be a recession like before but a mild cool down of the overall economy with polarization while maintaining total economic volume."

Researcher Baek said, "Although the Fed made a big cut at the September Federal Open Market Committee (FOMC), it was more of a preemptive response considering recession risks rather than a response to a recession. Although the US economy is slowing, considering the stability of inflation indicators and the absolute levels of some indicators such as employment, the figures are good enough not to be considered a recession."

There were also opinions that, even if there are no immediate recession signals, attention should be paid to the possibility of deterioration in employment indicators. Researcher Kang expressed concern, "The Fed's big cut decision was because it saw a high level of uncertainty in the US economic outlook. Although there is no immediate evidence of recession, since the key basis for the big step cut was employment indicators, attention should be paid to the degree of future deterioration in employment indicators."

Researcher Jung warned, "Looking at US housing and corporate investment indicators, housing investment is decreasing, and corporate investment is on an increasing trend but is expected to reverse to negative later. There is also uncertainty about the sustainability of AI investments by big tech companies, so these points need to be watched carefully."