[Monetary Policy Poll] ① Growth Rate Drops to 0% Range: "100% Rate Cut in May, Next in August"

All 17 Experts Predict "Rate Cut in May"
Focus on "Growth Worsened by Tariff Wars and Sluggish Domestic Demand"
82.4% Expect Next Cut in August... "To Align With Expansionary Fiscal Policy"
Rate to 2.00% by Year-End... Lowered Expectations Amid Economic Concerns
US Rate Cut: July vs. September... Tug-of-War Between Inflation and Slowdown

As the Monetary Policy Committee of the Bank of Korea prepares to decide the base interest rate on the 29th, experts are leaning toward a 0.25 percentage point (25 basis points) cut. If the expected 25bp cut takes place this month, the base rate will be adjusted from 2.75% to 2.50% per annum.

Experts unanimously stated that the main reason for this month’s rate cut is the worsening outlook for South Korea’s economic growth rate, which now threatens to fall into the 0% range this year. This is due to a combination of factors: a deepening slump in domestic demand, especially in consumption and construction; a worsening global trade environment caused by tariff wars; a slowdown in exports; and delayed recovery in industries losing ground to China. As a result, the Bank of Korea is also expected to sharply lower its growth forecast for this year and move to cut rates to support the economy. Most experts predict the next rate cut will come after August, with many forecasting the final rate for the year at 2.00%. This is a lower level than last month, when most expected a final rate of 2.25% amid concerns over a deepening economic slowdown.

Lee Changyong, Governor of the Bank of Korea, is presiding over the Monetary Policy Direction meeting of the Monetary Policy Committee held on the 17th of last month at the Bank of Korea in Jung-gu, Seoul. Photo by Joint Press Corps

All 17 Experts Predict "25bp Cut in May"... Concerns Over Growth Falling Into 0% Range, Stabilization of Weak Won

According to a survey conducted by Asia Economy from May 20 to 23 of 17 economic experts from domestic and international research institutes, securities firms, banks, and academia, all respondents (100.0%) predicted a 25bp rate cut this month. This is because concerns over an economic slowdown have intensified, with exports weakening and domestic demand sluggish following a negative growth rate (-0.2%) in the first quarter. Baek Yoonmin, a researcher at Kyobo Securities, said, "With continued uncertainty over external events such as U.S. tariff policy, the likelihood of the growth rate falling below 1% this year is increasing, significantly raising downside pressure on the economy and expanding structural growth risks. The Bank of Korea will see an even greater need for active monetary policy to defend the economy."

Key economic indicators support these concerns. According to the Korea Customs Service, exports from May 1 to 20 totaled $32 billion, down 2.4% from the same period last year, due in part to a 6.8% drop in exports to the U.S. In March, the retail sales index fell 0.3% due to weaker sales of durable goods, while facility investment and construction output fell 0.9% and 2.7%, respectively. As a result, the Bank of Korea is expected to join major domestic and international institutions in forecasting South Korea’s growth rate in the 0% range this year, further highlighting the need for a rate cut. Huh Moonjong, head of Woori Financial Management Research Institute, said, "Considering concerns over an economic slowdown, a rate cut is likely this month," adding, "The market will closely watch the Bank of Korea’s revised economic outlook, which will be announced alongside the rate decision."

With inflation remaining in the low 2% range and the recent stabilization of the weak won, conditions are also favorable for a monetary policy focused on growth. The won-dollar exchange rate, which had threatened to break above 1,500 won, is now hovering around the 1,380 won level. Kim Sungsoo, a researcher at Hanwha Investment & Securities, said, "Current inflation and foreign exchange market conditions support aggressive monetary policy adjustments." Another variable in the rate decision, household lending, has increased following the temporary lifting of land transaction permit zones (Toheoguyeok), but is expected to stabilize with the re-designation of these zones and the implementation of the third stage of the debt service ratio (DSR) regulation in July.

'Next Cut After August' Gains Traction... "Additional Cuts to Align With Expansionary Fiscal Policy"

The dominant view is that the next rate cut will come in August. Fourteen experts (82.4%) cited August as the timing for the next cut. Experts believe that, given the economic slowdown, further monetary policy adjustments are needed to address weak growth. They also cited the need to align with the government’s expansionary fiscal policy, which will begin in earnest after the June 3 presidential election, making August the appropriate time for another cut.

Gong Dongrak, a researcher at Daishin Securities, said, "After the new government takes office, more policy responses will be needed to boost the growth rate," adding, "I expect another rate cut around August, when policy measures will be in full swing." Park Sanghyun, a researcher at iM Securities, also said, "Strong monetary and fiscal policies are needed to support the economy," and diagnosed, "An additional rate cut will be necessary to maximize the effect of strengthened fiscal policy following the inauguration of the new government."

Given the heightened concerns over an economic downturn, it is expected that the rate will be cut to below the midpoint of the neutral rate. Yoon Yeosam, a researcher at Meritz Securities, predicted, "After checking for shocks to the Korean economy during tariff negotiations through July following the presidential election, the rate will be cut to 2.25%?the estimated midpoint of the neutral rate?by August."

However, some believe the pace of cuts will slow after May. Park Jungwoo, an economist at Nomura Securities, pointed out, "Although the economy is slowing, the risk of recession is easing due to the provisional U.S.-China tariff agreement. In addition, rising apartment prices in Seoul are expected to increase concerns over financial stability, and with the second supplementary budget after the presidential election, monetary policy may be operated somewhat conservatively, making a third-quarter rate cut somewhat uncertain." Kang Minju, chief economist at ING Bank, also commented, "It is clear that the Bank of Korea is in a rate-cutting cycle. The demand for rate cuts to ease household debt burdens and improve corporate funding will continue, but the pace of cuts will be quite gradual."

64.7% Predict "Year-End Rate at 2.00%"... Lowered Expectations Amid Deepening Economic Concerns

Eleven experts (64.7%) forecast that the base rate will fall to 2.00% by year-end. Assuming 25bp cuts, this suggests two more cuts in the second half of the year. The final rate forecast has been lowered from last month, when most expected 2.25%, due to heightened concerns over a deepening economic slowdown. Moon Hongchul, a researcher at DB Financial Investment, said, "After the new government takes office, there will be a push for policy mixing with fiscal policy to support the economy," adding, "While the U.S. Federal Reserve is adjusting the pace of policy rate cuts, the Bank of Korea will pay more attention to the domestic economy." Yoon, another researcher, also predicted, "Given the burden of economic slowdown this year, the rate will be cut to the lower end of the neutral range, reaching 2.00% per annum."

However, six experts (35.3%) predicted that there will be only one more rate cut after May this year. They cited not only the need to support the economy, but also the delayed rate cuts in the U.S. and concerns over financial instability due to increased investment in real estate and virtual assets. Gong, a researcher, said, "While an accommodative monetary policy stance to support the economy seems inevitable, a larger rate cut could highlight concerns over the interest rate gap and financial stability both domestically and internationally. Therefore, I expect the August cut (to 2.25%) to be the last for this year. Next year, in line with the possibility of a lower neutral rate due to a slowdown in potential growth, rates will be normalized to 2.00%."

US Policy Rate Cut: 35.3% Predict July, 29.4% September... Tug-of-War Between Inflation and Economic Slowdown

Six experts (35.3%) believe the US Federal Open Market Committee (FOMC) will cut its policy rate in July. The US policy rate, currently at an upper bound of 4.50%, is expected to be cut two or three times this year, reaching 3.75-4.00% by year-end. While most expect 3.25% by the end of next year, uncertainty over both inflation and economic slowdown has led to forecasts ranging from 3.00% to 4.00%.

Ahn Yeha, a researcher at Kiwoom Securities, said, "With real economic indicators weakening due to US trade policy, there is a high possibility that the first rate cut of the year will occur in July." Kim Sanghoon, a researcher at Hana Securities, also said, "Given the lag between layoffs and unemployment, and the burden on the economy if high rates persist due to fiscal deficits, I expect a policy rate cut in July." Ahn Jaegyun, a researcher at Shinhan Investment & Securities, added, "From an employment perspective, the case for a cut has already been made."

However, five experts (29.4%) predicted that the rate cut will not happen until September. Given the high level of economic uncertainty, the Federal Reserve’s position is that it will wait for confirmation that inflation expectations are anchored, making July too early for a cut. Kang, chief economist, noted, "In the second half, higher prices due to tariffs will weigh on consumption, and rising market rates due to US fiscal concerns will negatively impact corporate investment." As a result, even if inflation remains high, the Fed is expected to gradually resume rate cuts starting in September.

Experts Participating in the Survey (in alphabetical order)

Kang Minju, chief economist at ING Bank; Kang Seungwon, researcher at NH Investment & Securities; Gong Dongrak, researcher at Daishin Securities; Kim Sanghoon, researcher at Hana Securities; Kim Sungsoo, researcher at Hanwha Investment & Securities; Kim Jinil, professor of economics at Korea University; Moon Hongchul, researcher at DB Financial Investment; Park Sanghyun, researcher at iM Securities; Park Seokgil, economist at JP Morgan; Park Jungwoo, economist at Nomura Securities; Baek Yoonmin, researcher at Kyobo Securities; Ahn Yeha, researcher at Kiwoom Securities; Ahn Jaegyun, researcher at Shinhan Investment & Securities; Yoon Yeosam, researcher at Meritz Securities; Jeong Seongtae, researcher at Samsung Securities; Cho Youngmoo, research fellow at LG Economic Research Institute; Huh Moonjong, head of Woori Financial Management Research Institute.