[Geumtongwi poll] ① "February rate cut by 25bp"... Next cut after May

Survey of 10 Domestic Experts by Asia Economy
Relative Stability in Political Risks and Exchange Rate Volatility
Concerns Over Economic Slowdown and Low Growth Increase... February Cut Likely
Next Cut 'After May'... Three or Two Cuts Expected This Year
Attention on Trump Policies... Exchange Rate Volatility and Domestic Demand Slump Are Key Variables

As the Bank of Korea's Monetary Policy Committee prepares to decide on the base interest rate on the 25th, experts have placed weight on a 0.25 percentage point (25bp) cut. If the expected 25bp cut is implemented this month, the base interest rate will be adjusted from 3.00% per annum to 2.75% per annum. This marks a return to the 2% range after about two years and four months.

Yonhap News

Experts emphasized the 'February cut' amid growing concerns over downward pressure on the economy, noting that domestic political risks and exchange rate volatility have shown relative stability. The prevailing expectation was that the next cut would occur after May, with a total of three cuts this year. However, with the delay in the US policy rate cuts gaining traction, the forecast that Korea will limit cuts to two times also gained more weight than before.

All 10 Experts Say "25bp Cut in February"... Weight on 'Next Cut After May'

On the 24th, Asia Economy conducted a survey from the 17th to the 21st targeting 10 economic experts from domestic and international economic research institutes, securities firms, and banks. All respondents predicted a 25bp cut in the base interest rate this month. Experts analyzed that the major reasons for the rate freeze last month, despite all Monetary Policy Committee members expressing concerns about downside risks to the economy, were that the 'political variables' and 'exchange rate pressures' had entered a relatively stable zone. At the end of last year, amid severe political turmoil and strong dollar pressures, the won-dollar exchange rate rose to 1,480 won, increasing volatility. The sharp fluctuations continued until last month but have since stabilized around the 1,430?1,440 won range due to easing concerns over tariffs from the second Trump administration.

Ahn Jaekyun, a researcher at Shinhan Investment Corp., said, "With limited expansion of additional political uncertainties and easing strong dollar pressures, the won-dollar exchange rate rise has paused," adding, "The focus will be on the deepening concerns over low growth, leading to a rate cut." Kim Seongsu, a researcher at Hanwha Investment & Securities, also said, "'If it weren't for the exchange rate,' the common opinion among Monetary Policy Committee members was that a cut would have been made in January," adding, "Since exchange rate volatility has calmed, a February cut is likely."

Inflation has also entered a stable phase, and attention is expected to focus on concerns over low growth due to domestic demand slowdown and declining export growth rates. Kang Seungwon, a researcher at NH Investment & Securities, said, "If oil prices remain stable, Korea will not have inflation concerns," adding, "The significant downward revisions in Korea's economic growth forecasts from the end of last year to recently will be emphasized." He also saw a high possibility of a unanimous rate cut by the Monetary Policy Committee. Gong Dongrak, a researcher at Daishin Securities, said, "Considering the increased downside risks to the economy and policy absence risks due to political uncertainties, the rate cut decision is expected to be unanimous."

This Year... 'Three Cuts' to Respond to Economic Slump vs. 'Two Cuts' Due to US Delay

Ninety percent (9 out of 10) forecast that the next cut will be 'after May.' It is necessary to monitor inflation trends and the supplementary budget decision after the February rate cut. Kang Minju, chief economist at ING Bank, predicted, "We will monitor the effects of the three rate cuts since the end of last year and carefully observe whether the inflation rate slows down." Ahn also explained, "While keeping the possibility of additional cuts open, efforts will focus on maximizing the economic stimulus effect in line with the timing of the supplementary budget implementation." However, there was also an opinion that an additional 25bp cut could be made consecutively in April after February. Jo Youngmoo, a research fellow at LG Economic Research Institute, diagnosed, "The need for monetary easing policy response has intensified due to confirmed economic slowdown, so an additional cut in April is expected."

The most common opinion, at 50% (5 people), was that there will be a total of three rate cuts by the Monetary Policy Committee this year. The final rate this year is expected to be 2.25%. Researcher Kim said, "Since the end of last year, the Bank of Korea has indicated preemptive responses to economic slowdown," adding, "Considering that inflation re-acceleration concerns are not significant and Governor Lee Chang-yong's remarks that 'the easing cycle can focus more domestically compared to the tightening period,' active policy responses are likely." Park Sanghyun, a researcher at iM Securities, also forecasted a rate of 2.25% by the end of the year, saying, "Under the inflation stabilization trend, aggressive monetary policy is necessary to offset additional downside risks to the economy due to increased external uncertainty risks."

However, the forecast that there will be only two cuts this year also accounted for 30% (3 people), increasing its share compared to before. In a situation where burdens have increased due to the delay in the US Federal Reserve (Fed) rate hikes, it is analyzed that monetary easing combined with fiscal expansion will first adjust the base rate to a neutral level and then adopt a strategy according to the situation. Researcher Gong said, "Considering the risk of exposure to exchange rate volatility with additional cuts, I expect two rate cuts this year."

US Holds Rate in March... One Cut in First Half, Two Cuts This Year Expected

Regarding the US policy rate, most expect it to be held steady at the next Federal Open Market Committee (FOMC) meeting in March. This is because inflation has not eased much, and the labor market remains strong. It is expected that rates will be held for a while to assess inflation and employment conditions. However, 90% (9 people) expect one cut in the first half of the year. If private consumption indicators are released below market expectations for two consecutive months, expectations for rate cuts in the second half will revive.

The dominant opinion was that the additional cut will occur in June. Researcher Kang said, "The core of the new US government's economic policy direction is to reduce government spending," adding, "Economic indicators reflecting the new government's policy operation will be confirmed in the second quarter." He explained that concerns about overheating and inflation will ease in June, allowing the Fed to resume cuts.

Ninety percent (9 people) forecast a total of two cuts this year. Since the Fed wants a 'slightly tight level' of rates to control inflation, the final level this year is expected to be 4%. Economist Kang said, "Inflation will remain higher than expected, but consumption slowdown due to prolonged high rates is expected to intensify after the second quarter," expressing the opinion that two rate cuts will be made this year. Researcher Jo also said, "Despite rising inflation concerns, the need to respond to gradual economic slowdown means two cuts will be made."

Attention Needed on Trump Policies... Exchange Rate Volatility and Domestic Demand Slump Also Key Variables

Currently, the variable that received the most votes as a major factor in the Bank of Korea's monetary policy (multiple responses allowed) is the 'Trump second-term economic policy.' Due to Korea's small open economy characteristics, Trump's trade strategies have enough power to change Korea's economic trajectory, making it the most sensitive factor when deciding rates. Researcher Kim said, "Referring to Trump's first term, the period when the US exerts significant downward pressure on Korea's economy is the second to third year of the administration," adding, "We must consider that 2026 and 2027 may be more challenging than this year."

The exchange rate was also cited as a major variable. Currently, the exchange rate reflects complex influences including Trump policy uncertainties, domestic political risks, and Korea's economic slowdown, so special attention should be paid to the exchange rate level and volatility. Researcher Ahn said, "Since exchange rate volatility is significantly affected by domestic political risks and Trump policies, the exchange rate is a major variable at this point."

Domestic demand slump is also described as a key variable in monetary policy. Economist Kang said, "Recent real economy data shows worsening domestic demand slump, but due to risks from the high won-dollar exchange rate level, the pace of cuts is being controlled," adding, "In addition to domestic demand slump, Trump's second-term economic policies are likely to negatively impact Korean exports, so a more aggressive policy easing response is expected." Park Seokgil, an economist at JP Morgan, said, "Inflation outlook is relatively stable, and downside risks to the economy are the most important variable," adding, "Other factors influence this variable." Researcher Park also emphasized, "We must be cautious about the combined risks of domestic inflation and economic instability."