[Geumtongwi poll] ① 75% Expect April Interest Rate 'Hold'... Weight on May Cut

April 'Hold' Expected... Tariff Shock Heightens Exchange Rate Volatility and Household Debt Concerns
Next Rate Cut: 'Likely' in May if April Holds... Expected in July-August if April Cuts
Korea's Base Rate Cuts: "2.25% by Year-End, 2.00% Next Year"
50% Probability of U.S. Policy Rate Cut in June... Responding to Tariff-Driven Inflation and Economic Conditions

Ahead of the Bank of Korea's Monetary Policy Committee's base interest rate decision on the 17th, experts largely expect the rate to remain unchanged at the current level of 2.75% per annum. It is anticipated that the committee will take a breather and monitor the situation amid financial and foreign exchange market instability, such as exchange rate fluctuations triggered by tariffs imposed by U.S. President Donald Trump. However, considering the deepening shadow of low growth, a rate cut is expected in May.

Lee Chang-yong, Governor of the Bank of Korea, is striking the gavel at the Monetary Policy Committee plenary meeting held at the Bank of Korea headquarters in Jung-gu, Seoul, on February 25. Photo by Joint Press Corps

April 'Hold' Favored... Exchange Rate Volatility and Household Debt Concerns Heightened by Tariff Shock

On the 14th, Asia Economy conducted a survey from the 8th to the 11th among 12 economic experts from domestic and international economic research institutes, securities firms, and banks. Nine respondents (75.0%) predicted that the base interest rate would be held steady this month. Given the tariff shock from Trump causing sharp exchange rate fluctuations that increased both volatility and levels, a rate cut is expected to pause temporarily to observe market stability. On the 4th, the won-dollar exchange rate dropped to around 1,434 won as political uncertainty was removed following the impeachment of former President Yoon Seok-yeol. However, concerns over the expansion of the U.S.-China tariff war caused the rate to surge to about 1,484 won within three trading days, maximizing volatility. Since then, the exchange rate has fluctuated around 1,450 won after the U.S. granted a 90-day tariff exemption to about 75 countries excluding China.

The stronger-than-expected tariff measures have increased downside risks to the economy, but the 90-day exemption leaves uncertainty about the precise economic impact going forward. Shin An-jae-gyun, a researcher at Shinhan Investment Corp., said, "Concerns over growth rate declines due to tariff shocks are expected to be greater next year than this year," adding, "Rather than an urgent rate cut, the path of rate cuts will be maintained to align with future expansionary fiscal policy timing."

Concerns over expanding household debt also underpin expectations for a rate hold this month. Although Seoul City has expanded the designation of land transaction permission zones, stabilizing the real estate market, the impact of loan expansion following earlier deregulations has yet to be confirmed. Accordingly, the Monetary Policy Committee is expected to monitor household debt sensitivity and the balloon effect in the metropolitan area, controlling excessive expectations for monetary easing. A rate cut this month could raise expectations for the base rate to fall to 2.00% this year, which also supports the hold forecast. Gong Dong-rak, a researcher at Daishin Securities, said, "Considering financial stability concerns due to rising real estate prices and household loans in some parts of Seoul in March, a resumption of rate cuts with a time lag is more likely than consecutive cuts following February." Heo Moon-jong, head of the Woori Financial Management Research Institute, also noted, "Considering the strong housing prices and rising household loans in Seoul, a hold in April is expected."

On the other hand, three respondents (25.0%) who forecast a rate cut in April viewed downside economic pressure as more significant. If the Monetary Policy Committee members judge that a sharp downward revision of domestic economic growth is inevitable due to tariff shocks, a 0.25 percentage point (25bp) cut cannot be ruled out. Kang Min-joo, chief economist at ING Bank, said, "Growth slowdown is expected to be steeper than anticipated due to U.S. tariffs, domestic demand sluggishness, natural disaster damages, and delays in supplementary budgets," adding, "While won depreciation will be a major obstacle to rate cuts, inflation increases due to won weakness are likely to be offset by weak demand, making a sharp rise in inflation above 2.0% unlikely." Park Sang-hyun, a researcher at iM Securities, said, "Considering the domestic situation, including the absence of a control tower and possible delays in supplementary budgets due to early general elections, a rate cut this month is more likely."

Bank of Korea Governor Lee Chang-yong is presiding over the Monetary Policy Committee plenary meeting at the Bank of Korea headquarters in Jung-gu, Seoul, on February 25. Photo by Joint Press Corps

Next Rate Cut: 'Likely' in May if April Holds... Expected in July-August if April Cuts

Most opinions pointed to May as the timing for the next rate cut. Among the nine who forecast a hold in April, eight (66.7%) predicted a cut in May. This reflects expectations that the downside risks to the economy and growth rate concerns due to U.S. tariff shocks will intensify pressure for rate cuts.

Park Jung-woo, an economist at Nomura Securities, said, "With the downward revision of economic forecasts in May, the domestic economic impact of tariff shocks will become clearer," adding, "This will be addressed with additional rate cuts." Kang Seung-won, a researcher at NH Investment & Securities, said, "Due to the unique nature of the tariff war, exchange rate volatility is at an extreme level," and "After exchange rate stability is secured with a time lag, a rate cut is expected in May."

Experts who anticipated a rate cut in April predicted the next cut would occur in July or August. Park Seok-gil, an economist at JP Morgan, said, "After consecutive cuts in February and April, there will be a pause to assess the effects of rate cuts and the policy environment," adding, "As the year progresses, rate cuts will likely resume due to influences such as the U.S. Federal Reserve's policy rate cuts."

Some who expect a hold in April see the next cut in July. They anticipate cautious monetary policy operation amid uncertainties such as U.S. tariff policies and the Korean presidential election through the first half of the year. Kim Sung-soo, a researcher at Hanwha Investment & Securities, said, "Since three rate cuts have already been made in this cycle, now is the time to observe policy effects," adding, "The cautious approach of the Fed should also be considered."

Korea's Base Rate Cuts: "2.25% by Year-End, 2.00% Next Year"

The dominant expectation was that Korea's base interest rate would fall to 2.25% by the end of this year. Seven out of 12 respondents (58.3%) predicted 2.25%. Assuming 25bp cuts, this implies three cuts this year, including the one in February. This aligns closely with Bank of Korea Governor Lee Chang-yong's comment after the February rate decision that the expected number of cuts this year (2-3 times) is similar to market expectations.

Yoon Yeo-sam, a researcher at Meritz Securities, said, "We maintain the previous forecast of lowering the rate to 2.25% through two additional cuts in May and August," adding, "2.25% is below the estimated domestic neutral rate midpoint (around 2.50%)." He noted, "Considering economic risks, there is a possibility of lowering the rate to 2.00%, but currently, fiscal policy is judged to be more important than monetary policy for economic stability." It is expected that monetary policy responses will be aligned with fiscal policy intensity after the June presidential election.

There were also considerable opinions expecting the rate to fall to 2.00% by year-end. Including the three who expect a rate cut this month, four respondents (33.3%) forecast a total of four cuts this year. Conversely, a minority expected only two cuts, leaving the year-end rate at 2.50%. Researcher Gong explained, "Considering exposure to exchange rate volatility risks with additional cuts, we expect only two cuts this year."

The most common forecast for next year's rate level was 2.00% (five respondents). This reflects a normalization perspective aligned with a potential downward shift in the neutral rate due to slowing potential growth. However, there were also several opinions (three respondents) that next year's cuts would be cautious. Researcher Yoon said, "If this cycle's cuts bring the economy to a bottom this year, further cuts will be cautious for the time being," adding, "While acknowledging the possibility of lowering to 2.00% as a long-term equilibrium level, responses will be made while monitoring financial stability sensitivities such as exchange rates, real estate, and household debt."

50% Probability of U.S. Policy Rate Cut in June... Responding to Tariff-Driven Inflation and Economic Conditions

The most common view (six respondents, 50.0%) was that the U.S. Federal Open Market Committee (FOMC) would cut policy rates in June. The expected upper bound of the U.S. policy rate, currently at 4.50% per annum, is forecast to be 3.75% by the end of this year and 3.00% by the end of next year.

Views on the timing of the next cut depend on whether the focus is on growth rate declines or inflation increases caused by tariffs. The majority expect a June cut because they anticipate confirming limited inflation shocks from tariffs and then responding to slowing economic conditions. Jo Young-moo, a research fellow at LG Economic Research Institute, said, "Concerns over inflation and economic slowdown are conflicting, so rate cuts will likely start from June rather than May." Kang, a researcher, also said, "It is necessary to confirm whether actual economic indicators decline in the second quarter and whether medium- to long-term inflation expectations decrease," adding, "Rate cuts will resume from June."

Other opinions were scattered across May, July, September, and December. Moon Hong-chul, a researcher at DB Securities, who expects a May cut, views tariff risks as significant downside factors. The chief economist Kang, who expects a July cut, believes that despite uncertainties from Trump's policies, indicators will remain relatively stable through early Q2. He said, "Psychological indicators, inflation expectations, and survey data have sharply declined, which will be reflected in real indicators with a lag, determining the Fed's rate cut timing," adding, "I expect a cut around July." Researcher Kim, who anticipates a September cut, cited the Fed's emphasis that "the U.S. government policies will respond when they have a net effect on inflation and the economy." Although tariffs and immigration policies currently affect inflation and employment, they have not led to a trend reversal, so cuts are expected around September.

There was also an opinion that cuts would only occur in December, emphasizing inflation risks in the U.S. Park Jung-woo, an economist, said, "Despite tariff shocks, the possibility of a recession is very low due to a strong labor market and robust corporate investment," adding, "The Fed will focus monetary policy on inflation risks caused by tariffs."