[Geumtongwi poll] ① 75% of Experts Say "Interest Rate Will Drop in October"... First Cut in 4 Years and 5 Months

Asia Economy October Monetary Policy Committee Survey
15 out of 20 Experts (75%) Forecast October Base Rate Cut
Considering Stable Inflation, US Rate Cut, Domestic Demand Slump, and Other Factors
Base Rate Cut Expected for the First Time in 4 Years and 5 Months Since May 2020

Economic experts predict that the Bank of Korea's Monetary Policy Committee (MPC) will cut the base interest rate by 0.25 percentage points at its meeting on the 11th. This analysis is based on the fact that the United States has begun to lower its base interest rate in earnest and that domestic inflation has clearly stabilized, strengthening the conditions for a rate cut. The continued sluggishness of the domestic economy is also seen as a factor making it difficult for the Bank of Korea to delay further rate cuts.

15 out of 20 experts (75%) forecast an October rate cut

According to a survey conducted by Asia Economy from the 30th of last month to the 4th of this month targeting 20 economic experts from domestic and international economic research institutes, major securities firms, and banks, 75% (15 experts) expect the Bank of Korea to lower the base interest rate from the current 3.50% to 3.25%, a 0.25 percentage point cut. The remaining five experts predicted the rate would remain unchanged this month.

If the Bank of Korea cuts the base rate this time, it will be the first rate cut in four years and five months since May 2020. In 2020, the Bank of Korea lowered rates to 0.50% to prevent an economic recession caused by the COVID-19 pandemic. Subsequently, due to concerns about high inflation, the base rate was raised to 3.50% by January last year, and the rate was held steady for 13 consecutive times until August this year.

Experts evaluated that the conditions for a rate cut by the Bank of Korea have been substantially met following the U.S. Federal Reserve's big cut (a 0.5 percentage point cut) last month. Joo Won, head of the Economic Research Department at Hyundai Research Institute, said, "With the U.S. lowering rates, the environment for the Bank of Korea to cut the base rate this month has been established," adding, "Considering not only the U.S. but also the rate-cutting movements of major advanced countries and the domestic sluggish demand, the Bank of Korea is expected to cut the base rate by 0.25 percentage points this month."

Ahn Yeha, a researcher at Kiwoom Securities, stated, "With the U.S. Federal Reserve's rate cut expanding the Bank of Korea's policy room, a rate cut in October is expected."

The clear stabilization of inflation is also a factor prompting a rate cut. According to Statistics Korea, the consumer price index (CPI) inflation rate in September was 1.6% year-on-year, falling into the 1% range for the first time in three and a half years since March 2021 (1.9%). This figure is well below the Bank of Korea's inflation target of 2.0%. Kim Woong, Deputy Governor of the Bank of Korea, predicted, "The consumer price inflation rate will remain below 2% for the time being and fluctuate around 2% toward the end of the year due to base effects."

Jo Yonggu, a researcher at Shin Young Securities, said, "There has been no significant change in the outlook for a soft landing of the global economy, including the U.S., while the inflation rate slowed to 1.6% in September, strengthening the inflation stabilization trend," adding, "Since the U.S. is expected to cut rates further after the big cut, the Bank of Korea's justification and atmosphere for starting a rate cut in October have been strengthened."

Yoon Yeosam, a researcher at Meritz Securities, diagnosed, "As inflation converges around the target level of about 2%, conditions have been formed to lower the interest rate level in a constrained manner." Gong Dongrak, a researcher at Daishin Securities, also explained, "Since the inflation rate was recorded below the target level, a rate cut in October is expected," adding, "Due to the emergence of economic uncertainty factors, the response of interest rate policy related to the economy can also weigh more on cuts, and inflation stabilization has made it easier to respond to economic factors than before."

The Bank of Korea unlikely to overlook domestic demand slump any longer

There is also an assessment that the Bank of Korea will cut rates because household debt growth has slowed recently and the Bank judges that it can no longer overlook the domestic demand slump.

Kang Seungwon, a researcher at NH Investment & Securities, emphasized, "Considering the number of business days, the increase in household loans at the five major banks in September dropped sharply to 57% compared to August, confirming the effect of government policies, while the inflation rate also fell to a shock level, making it highly likely that the Bank of Korea will start cutting rates in October," adding, "Following a 0.25 percentage point cut in October, an additional 0.25 percentage point cut in November is also possible."

Ahn Jaekyun, a research fellow at Shinhan Investment Corp., argued, "With the Bank of Korea expected to cut rates once a year, it is anticipated that the rate cut will be implemented in October, which has a greater effect on stimulating domestic demand than November," adding, "The growth rate of mortgage loans has also slowed since September, reducing the burden of a rate cut in October."

Park Sanghyun, a senior advisor at iM Securities, said, "As inflation stabilizes, the need to boost domestic demand is strengthening, so the Bank of Korea will cut the base rate in October."

Some MPC members hinting at the possibility of a rate cut also support the forecast of an October rate cut. Shin Seonghwan, a member of the Bank of Korea's Monetary Policy Committee, stated at a press briefing on the 25th of last month, "Our economy does not have the luxury to wait until the housing price rise slows down significantly," indicating the necessity of a rate cut. Jang Yongsung, another MPC member, suggested the possibility of a future rate cut through the Financial Stability Report, saying that financial imbalances that may arise from lowering rates can be addressed by proactive government policies such as housing supply and household debt management.

Baek Yunmin, a research fellow at Kyobo Securities, predicted, "I believe the consensus within the MPC is leaning toward a rate cut in monetary policy," adding, "The Bank of Korea will cut the base rate by 0.25 percentage points this month."

If rates remain unchanged in October, it is due to household debt concerns

Experts who forecast a rate hold in October commonly cited concerns about the increase in household debt. They opined that the Bank of Korea will wait to confirm the slowdown in household debt growth a bit more and cut rates around November.

Kim Seongsu, a researcher at Hanwha Investment & Securities, said, "I expect a hold in October and a cut in November," adding, "Although various real estate-related measures and regulations have been implemented, it takes time to confirm their impact and effects."

Jo Youngmoo, a research fellow at LG Economic Research Institute, also said, "It is necessary to confirm the slowdown in household debt growth, but it is unlikely that this will be confirmed by indicators by the October MPC meeting, so I expect a rate hold in October."

Park Seokgil, a researcher at JP Morgan, forecasted, "Some conditions for a rate cut, such as inflation stabilization, have been met, but due to household debt issues, the possibility of a cut is higher in November than in October." Kim Sanghoon, a researcher at Hana Securities, also predicted a hold in October and a cut in November, saying, "It will be insufficient to confirm the trend of financial stability-related data by the MPC meeting on October 11."