[Geumtongwi poll] ① "November Base Rate Freeze Confirmed, January Cut Possible"

All 20 Experts Expect Bank of Korea to Keep Base Rate Steady in November
High Exchange Rate and Reduced Likelihood of US Rate Cuts Lead to Rate Hold for Now
US Expected to Cut Base Rate by 0.25 Percentage Points in December
Bank of Korea Likely to Cut Base Rate in January Next Year

Economic experts predict that the Bank of Korea's Monetary Policy Committee (MPC) will keep the base interest rate unchanged at its meeting on the 28th. Given the burden of the won-dollar exchange rate soaring to around 1,400 won, concerns over household debt, and the possibility of a slowdown in the pace of the U.S. interest rate cuts, it is analyzed that it will be difficult for the Bank of Korea to cut rates for the second consecutive time. Experts expect that if the U.S. lowers its base rate next month, Korea will also consider a rate cut in early next year.

All 20 Experts Expect Bank of Korea to Keep Base Rate Unchanged in November

According to a survey conducted by Asia Economy from the 18th to the 22nd among 20 economic experts from domestic and international economic research institutes, securities firms, and banks, 100% of respondents? all 20 experts? predicted that the Bank of Korea will keep the base interest rate unchanged this month.

Last month, the Bank of Korea cut the base interest rate by 0.25 percentage points from 3.5% to 3.25%, marking the start of a pivot (policy shift) for the first time in 38 months since August 2021.

Although the Bank of Korea has started the pivot, experts believe that due to the high exchange rate, increasing household debt, and domestic and international environments such as Trump's election, it is not easy to cut the base rate for two consecutive months. Many view that the Bank of Korea will be cautious about financial stability risks rather than pursuing aggressive economic stimulus.

Jo Young-moo, a research fellow at LG Economic Research Institute, said, "Due to the rise in the won-dollar exchange rate, increase in household debt, and the cautious stance on U.S. interest rate cuts, the Bank of Korea is expected to keep the base rate unchanged this month." However, Jo added, "Since the Bank of Korea is burdened by concerns over missing the opportunity to cut rates, there will likely be a minority opinion in favor of a rate cut this time, and the rate is expected to be lowered in January next year."

Kim Sun-tae, an economist at KB Kookmin Bank, also diagnosed, "Although domestic demand is sluggish and inflation is declining, the Bank of Korea will keep the base rate unchanged this month due to concerns over the sharp rise in the exchange rate and capital outflows."

Lee Chang-yong, Governor of the Bank of Korea, is presiding over the Monetary Policy Direction meeting of the Monetary Policy Committee held at the Bank of Korea in Jung-gu, Seoul, on October 11. Photo by Joint Press Corps

Financial Stability Risks Remain, Burden on Consecutive Rate Cuts

Risks to financial stability such as increasing household debt and rising housing prices are also factors that make the Bank of Korea hesitant to further cut the base interest rate.

Baek Yoon-min, a research fellow at Kyobo Securities, said, "The monetary easing stance to respond to economic slowdown will be maintained," but added, "Given the expanding external uncertainties and the Bank of Korea's vigilance against financial imbalance risks, consecutive rate cuts are difficult."

Since the base rate was cut once last month, some opinions suggest that rather than cutting rates for two consecutive months, the Bank of Korea will take a cautious approach this time while observing the effects of the previous cut.

Heo Ji-soo, a senior researcher at Woori Financial Management Research Institute, predicted, "Although the recent inflation rise has eased, there is a need to review the effects of the October rate cut, and considering the recently increased volatility in the foreign exchange market, the Bank of Korea is expected to maintain the base rate at the current level at this MPC meeting."

Park Seok-gil, an economist at JP Morgan, emphasized, "Currently, there is still a significant conflict among policy variables (growth and financial stability), so the Bank of Korea is expected to lower rates at a more cautious pace rather than cutting rates twice in a row."

U.S. Expected to Cut Rates by 0.25 Percentage Points in December

Experts predict that while the Bank of Korea will keep the base rate unchanged in November, the U.S. Federal Reserve (Fed) will cut rates by 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting in December. All 20 experts who responded to the survey shared this view.

Ahn Jae-kyun, a research fellow at Shinhan Investment Corp., stated, "The Fed cut the base rate twice consecutively in September and November, but considering the employment demand below full employment levels, it is expected to cut rates further."

Ahn Ye-ha, a researcher at Kiwoom Securities, said, "From the perspective that the inflation slowdown trend will continue, the rate cut in December is expected to proceed," adding, "Considering the weakening employment momentum, the rate cut path is valid."

Yoon Yeo-sam, a researcher at Meritz Securities, explained, "Given the increased uncertainty about the future U.S. economy and inflation outlook following Trump's election, there is a high possibility of a rate cut in December along the current dot plot path before Trump's inauguration," adding, "Last month's U.S. consumer price index met expectations, and the rate cut is also aimed at easing tightening pressures."

Kim Sung-soo, a researcher at Hanwha Investment & Securities, evaluated, "The U.S. will try to create a Goldilocks phase where economic growth continues amid slowing inflation by further cutting rates."

55% of Respondents Expect Bank of Korea to Cut Base Rate in January Next Year

Many expect that the U.S. will cut the base rate in December and the Bank of Korea will follow with a rate cut in January next year. It is assessed that as the U.S. lowers rates, easing exchange rate burdens and alleviating downside risks to the Korean economy, the Bank of Korea will also move to cut rates.

Among the 20 respondents, 55%, or 11 experts, answered that the Bank of Korea will cut the base rate by 0.25 percentage points in January next year.

Park Sang-hyun, a senior advisor at iM Securities, responded, "Although the Bank of Korea will keep rates unchanged this month due to financial stability risks and exchange rate volatility, it will cut rates in January next year to defend against downside risks to the economy."

Moon Hong-chul, a researcher at DB Financial Investment, predicted, "To respond to domestic demand recession and economic sluggishness due to protectionism concerns following Trump's election, the Bank of Korea will cut rates by 0.25 percentage points in January next year."

Regarding the expected number of rate cuts by the Bank of Korea next year, 11 experts (55%) predicted three cuts, followed by five experts (25%) expecting two cuts, two experts (10%) expecting four cuts, and one expert (5%) expecting one cut. For the U.S., 14 experts (70%) expected four rate cuts next year, followed by three experts (15%) expecting three cuts, and one expert (5%) expecting five cuts.