[Monetary Policy Poll①] Aftermath of Martial Law... "High Probability of Rate Cut in January"

65% of Experts Predict Bank of Korea to Cut Base Rate in January
Bank of Korea Expected to Cut Base Rate for Third Consecutive Time, First Since 2008 Global Financial Crisis
Rate Cut Seen as Unavoidable to Counter Economic Downturn and Political Uncertainty
US Expected to Hold Base Rate Steady This Month Amid Inflation Concerns

Economic experts believe that the Bank of Korea's Monetary Policy Committee will lower the base interest rate by 0.25 percentage points on January 16. There is an expectation that, in order to address concerns over a severe economic downturn, the Bank of Korea will cut rates for a third consecutive time-something that has not happened since the global financial crisis. In contrast, the United States is expected to keep its base interest rate unchanged this month due to inflation concerns.

Lee Changyong, Governor of the Bank of Korea, is striking the gavel at the Monetary Policy Committee meeting held on November 28 last year at the Bank of Korea in Jung-gu, Seoul. On that day, the Bank of Korea lowered the base interest rate by 0.25 percentage points. Photo by Joint Press Corps

65% of Experts Expect Bank of Korea to Cut Base Interest Rate in January

According to a survey conducted by Asia Economy from January 6 to 10 with 20 economic experts from domestic and international economic research institutes, securities firms, and banks, 65% of respondents (13 out of 20) predicted that the Bank of Korea would lower the base interest rate by 0.25 percentage points this month. This would bring the current rate from 3.0% down to 2.75%. The remaining 7 experts expected the rate to remain unchanged.

The Bank of Korea began a full-fledged policy pivot last October and November by cutting the base interest rate by 0.25 percentage points in each month. The November rate cut was even considered a surprise, as the market had expected a hold.

Since there was no monetary policy meeting in December last year, a rate cut this month would mark the third consecutive cut. This would be the first time since the 2008 global financial crisis that the Bank of Korea has cut rates three times in a row. Experts agreed that this reflects how seriously the Bank of Korea views the current economic situation.

Park Sanghyun, Senior Specialist at iM Securities, said, "Domestic political uncertainty has increased downward pressure on the economy," predicting, "The Bank of Korea will lower the base interest rate by 0.25 percentage points this month." Jung Sungtae, Researcher at Samsung Securities, stated, "As concerns over the slowdown of Korea's economic growth are intensifying, I believe the Bank of Korea will cut the base interest rate by 0.25 percentage points this month to respond to the sluggish economy."

The fact that Lee Changyong, Governor of the Bank of Korea, has recently taken a leading role in macroeconomic and financial issue meetings (so-called F4 meetings) and has been vocal about the need for economic stimulus is also cited as a factor increasing the likelihood of a rate cut. Kim Jeongsik, Professor Emeritus of Economics at Yonsei University, said, "Based on Governor Lee's recent remarks, it seems highly likely that the base interest rate will be cut in January to stimulate the economy," adding, "Even if it doesn't happen in January, there is a high possibility of a rate cut in February."

Gong Dongrak, Researcher at Daishin Securities, also commented, "Given the heightened downside risk to the economy and the risk of policy vacuum due to political uncertainty, I expect the monetary authorities to cut the base interest rate again in January. In particular, Governor Lee's recent leadership in the F4 meetings is also a background for the January rate cut forecast."

Even among the seven experts who predicted the base rate would remain unchanged this month, all expected the Bank of Korea to cut the rate next month. Effectively, there was a 100% consensus among experts that the Bank of Korea would cut the base interest rate at least once in the first quarter.

Cho Youngmoo, Research Fellow at LG Economic Research Institute, said, "Due to the increased burden of a higher exchange rate and the more cautious stance of the United States regarding rate cuts, I expect the Bank of Korea to keep the rate unchanged this month and cut it next month to respond to the domestic economy."

Heo Jisoo, Senior Researcher at Woori Financial Management Research Institute, also stated, "Considering the current situation of a persistently high exchange rate and the need to assess the effects of the last two consecutive rate cuts, the Bank of Korea will likely keep the rate unchanged this month and cut it by 0.25 percentage points next month."

There were also two experts who expected the Bank of Korea to cut the base interest rate consecutively in both January and February to more actively counter the economic downturn. Ahn Yeha, Researcher at Kiwoom Securities, explained, "To revive the sluggish domestic demand caused by political uncertainty, I expect the Bank of Korea to cut the rate in both January and February."

Oh Seoktae, Researcher at SG Securities, responded, "Given that political instability will make it difficult to pass an additional supplementary budget, I expect the Bank of Korea to quickly cut the base interest rate from January through February to stimulate the economy."

US Expected to Keep Base Interest Rate Unchanged This Month Due to Inflation Concerns

Unlike Korea, most experts expect the US to keep its base interest rate unchanged this month. Of the 20 surveyed, excluding two who did not respond, all 18 predicted that the US Federal Reserve would maintain the current rate at the Federal Open Market Committee (FOMC) meeting this month.

Joo Won, Director of Economic Research at Hyundai Research Institute, analyzed, "Unlike Korea, the US economy is performing well, and there are concerns about inflation, so it is highly likely that the base interest rate will remain unchanged in January."

Moon Hongcheol, Researcher at DB Financial Investment, said, "There are significant inflation concerns due to the launch of the Trump administration's second term, so I expect the FOMC to keep the base rate unchanged in January."

Kim Sanghoon, Researcher at Hana Securities, also noted, "Most FOMC members are taking a conservative stance on rate cuts, so the US is likely to pause on rate cuts this time."

Three Rate Cuts Expected in Both Korea and the US This Year

Many experts predicted that Korea would cut its base interest rate three times this year. Excluding non-respondents, 12 out of 20 predicted three cuts, 4 predicted two cuts, and 2 predicted four cuts.

Yoon Yeosam, Researcher at Meritz Securities, diagnosed, "With Korea's neutral rate midpoint now in the mid-2% range, a cut to around 2.25%, the lower end of the neutral rate, is needed to maximize the stimulus effect." Given the current base rate of 3%, he forecast three cuts of 0.25 percentage points each.

Kim Seongsu, Researcher at Hanwha Investment & Securities, also argued, "Given the recently announced potential growth rate projections, Korea could see growth fall into the 1% range this year. This is a factor that lowers the terminal level of the base rate, making three cuts this year quite possible."

Kim Seontae, Researcher at KB Kookmin Bank, said, "Following Trump's election, domestic consumption has slowed and uncertainty has increased, so I expect a rate cut each quarter from the first to the third quarter."

Similarly, for the US, most experts expected three rate cuts: 9 predicted three cuts, 7 predicted two, and 2 predicted four. Baek Yunmin, Senior Researcher at Kyobo Securities, interpreted, "Despite a solid economy and adjusted expectations for the Fed's monetary policy, the US is still expected to cut rates about once per quarter this year. This Fed rate cut cycle is a process to prepare for an economic slowdown, not a response to a recession or contraction."

Yoon also predicted, "As expectations for US rate cuts have significantly diminished and the burden of prolonged high rates accumulates, the need for rate cuts will increase from the second quarter after a pause in the first quarter, leading to about three cuts of 0.25 percentage points each."

Ahn Jaegyun, Researcher at Shinhan Investment & Securities, who predicted a maximum of two US rate cuts this year, explained, "Unlike Korea, strong growth and inflation above 2% in the US are reducing the need for rate cuts." Jung Sungtae, Researcher at Samsung Securities, also said, "The US is growing faster than Korea, so I expect only two cuts this year."