[Monetary Policy Poll]① "Household Debt Changed the Game" ? 100% of Experts Predict 'July Hold', Only One More Rate Cut Expected This Year

All 16 Experts Predict 'July Hold'
"Bank of Korea Shifts Focus to Financial Stability Amid Surge in Household Debt"
Most See Next Rate Cut in 'August,' But Share Decreases
56.3% Now Expect Only One More Rate Cut This Year
US Rate Cut Expected in 'September' by 68.8%..."Two More Cuts by Year-End"

With the Bank of Korea's Monetary Policy Committee set to decide the base interest rate on July 10, experts are unanimously expecting the rate to be held steady at 2.50% per annum. They point out that, following a recent surge in housing prices in Seoul and other regions, the rapid increase in household debt has shifted the Bank of Korea's focus toward financial stability.

Experts also believe that the conditions are now in place for the central bank to slow the pace of rate cuts. Factors such as the new government's supplementary budget are seen as offsetting downward economic pressures. As a result, the prevailing view is that the final policy rate for this year will be 2.25% per annum, which would be reached if the Bank of Korea implements one additional 0.25 percentage point (25bp) cut. This marks a shift in sentiment from May, when most experts expected the final rate to fall to 2.00% per annum due to deepening concerns over an economic slowdown.

All Experts Predict 'July Hold'... Bank of Korea Focuses on Financial Stability Amid Surge in Household Debt

According to a survey conducted by Asia Economy from July 1 to July 4 among 16 economic experts from domestic and international research institutes, securities firms, banks, and academia, all respondents (100.0%) predicted that the base interest rate would be maintained at 2.50% per annum this month. Of these, 12 experts anticipated a unanimous decision by the Monetary Policy Committee to hold rates steady.

The main reason cited is the recent sharp rise in Seoul housing prices, which has led to a surge in household debt. The accelerating pace of household debt growth poses a significant threat to financial stability, which the Bank of Korea is tasked with safeguarding alongside price stability. In April, household loans from financial institutions increased by 5.3 trillion won, and in May by 6 trillion won. The monthly increase is estimated to have approached 7 trillion won in June. If this projection holds, it would be the largest monthly increase in 10 months, since August last year (9.7 trillion won), when the real estate market was in a frenzy. Accordingly, experts believe that the Bank of Korea will take a pause this month to assess the effectiveness of the financial authorities' household debt measures, as well as the impact of previous rate cuts and the government's supplementary budget.

Kang Minjoo, Senior Economist at ING Bank, stated, "Concerns over the recent sharp rise in real estate prices and household debt will be the main reasons for holding rates steady this month." Yoon Yeosam, Researcher at Meritz Securities, also commented, "As real estate prices in the Seoul metropolitan area have become increasingly volatile, concerns over household debt and financial stability have grown, strengthening the case for caution regarding further rate cuts."

Lee Changyong, 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 May 29. Photo by Joint Press Corps

While concerns over economic growth persist, the recent rebound in sentiment indicators, coupled with the government's expansionary fiscal policy, has raised expectations for a future recovery. Additional factors supporting a July hold include Bank of Korea Governor Lee Changyong's direct mention of the possibility of a 0.2 percentage point upward revision to this year's growth rate due to the supplementary budget, and the fact that the central bank opted to hold rates steady even during periods of heightened economic anxiety in January and April.

Park Jungwoo, Economist at Nomura Securities, noted, "With the government's supplementary budget and other factors offsetting downward economic pressures, the Bank of Korea is now in a position to focus more on financial stability, such as the Seoul real estate market and household debt, rather than economic growth." Ahn Jaegyun, Researcher at Shinhan Investment & Securities, also predicted, "Signs of a rebound in consumer sentiment and domestic demand will lead the central bank to opt for a wait-and-see approach this month, rather than consecutive rate cuts."

The record-high Korea-US interest rate gap (2.00 percentage points) is also a concern. If Korea continues to cut rates while the US Federal Reserve holds off on policy rate reductions, it could reignite upward pressure on the exchange rate, which has recently stabilized from its peak. Gong Dongrak, Researcher at Daishin Securities, remarked, "It is necessary to assess the effects of previous rate cuts, so the central bank is likely to hold rates at this meeting and then adjust the timing and magnitude of future cuts."

Most See Next Rate Cut in 'August'... 56% Expect Only One More Cut This Year

The largest share of respondents, 11 out of 16 (68.8%), expect the next base rate cut to occur in August. While concerns over real estate and household debt remain, the recently implemented three-stage stress-based Debt Service Ratio (DSR) and the 600 million won cap on loans in the Seoul metropolitan area are expected to have some effect, providing room for the Bank of Korea to shift its focus back to the struggling economy. Some experts also anticipate that a rate cut timed with the execution of the supplementary budget will maximize its economic stimulus effect and strengthen coordination between fiscal and monetary policy. Yoon, the researcher, stated, "If the easing stance is acknowledged, it would be appropriate to cut rates in August and then respond cautiously to further signals." Moon Hongchul, Researcher at DB Financial Investment, added, "The recent decline in the exchange rate is also creating favorable conditions for a rate cut."

However, the share of respondents expecting an additional rate cut in August has decreased compared to May (82.4%). The number of experts predicting the next rate cut will come in the fourth quarter (October or November) has increased to four (25.0%), and some now expect no further cuts this year. Park, the economist, explained, "Although the government has announced new loan regulations, the growth rate of household debt remains high, so rate cuts will likely be put on hold for the time being. I expect the Bank of Korea to resume rate cuts only after the Fed restarts its own cuts at the end of the year. The next rate cut will likely occur around February next year."

Accordingly, nine experts (56.3%) now expect the final policy rate at the end of this year to be 2.25% per annum, which would be reached with one additional 0.25 percentage point cut from the current level (2.50%). Gong, the researcher, commented, "While a stimulative monetary easing stance seems inevitable, a larger rate cut could exacerbate concerns over the interest rate gap with the US and financial stability. Therefore, one additional rate cut is likely to be the last for this year." Six experts (37.5%) forecast the rate will reach 2.00% per annum with two more 0.25 percentage point cuts, but they noted that developments in the real estate market could be a variable.

US Rate Cut Expected in 'September' by 68.8%..."Two More Cuts by Year-End"

The largest share of respondents, 11 out of 16 (68.8%), expect the US Federal Reserve to begin cutting its policy rate in September. The main reason cited is the need for time to assess the impact of tariffs set to take effect in July. Experts also expect the Fed to respond to downward pressure from higher-than-expected unemployment and fiscal challenges in the third quarter. Heo Moonjong, Head of Woori Financial Management Research Institute, said, "Despite the risk of slower growth due to tariff policies, the Fed will likely cut rates in September, given the persistent inflation risks." Kim Jinil, Professor of Economics at Korea University, also commented, "The Fed will decide on a rate cut after assessing the magnitude of the tariff impact." Ahn, the researcher, added, "Even if tax cuts are extended, the negative effects of tariffs are expected to drive a slowdown in consumption, making a rate cut in September possible."

Respondents who expect a rate cut after October believe the Fed will wait to see third-quarter inflation trends before moving. Jo Youngmoo, Head of NH Financial Research Institute, said, "The Fed's persistent concerns about inflation will push the timing of a rate cut to October." Kang, the economist, noted, "Due to heightened vigilance over upside inflation risks, the Fed's rate cut could be delayed until year-end. However, if clear signs of an economic slowdown emerge after the third quarter, the Fed may implement a big cut (0.50 percentage point reduction) at the end of the year."

Eight respondents (50.0%) expect the upper bound of the US policy rate to be 4.00% at year-end, which would be reached with two 0.25 percentage point cuts. A single big cut would also bring the rate to 4.00%.

Four respondents (25.0%) expect the year-end rate to reach 3.75%. Baek Yoonmin, Researcher at Kyobo Securities, said, "I agree with Fed Governor Christopher Waller and Vice Chair Michelle Bowman that the inflationary impact of US tariff policy will be temporary, so a surprise rate cut in July is unlikely. Instead, I see a September rate cut as more probable, and I expect the Fed to deliver three rate cuts by year-end."

Experts Participating in the Survey (in alphabetical order)

Kang Minjoo, Senior Economist at ING Bank; Kang Seungwon, Researcher at NH Investment & Securities; Gong Dongrak, Researcher at Daishin Securities; Kim Seongsu, 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; Jo Youngmoo, Head of NH Financial Research Institute; Heo Moonjong, Head of Woori Financial Management Research Institute