[Monetary Policy Poll]① "Growth to Rebound... 71% Expect Rate Freeze in August, Next Cut in October"

Survey of 14 Asia Economy Experts: 71.4% Expect "Rate Freeze in August"
Need to Monitor Trend Stabilization of Housing Prices in Seoul and Metropolitan Area
Supplementary Budget and Economic Support, Consumption Recovery... Focus on Financial St

With the Bank of Korea's Monetary Policy Committee set to decide on the base interest rate on August 28, most experts are leaning toward maintaining the current rate at 2.50% per annum. The rise in housing prices, which was the decisive factor behind last month's rate freeze, is expected to remain a core issue this month as well. The real estate market has shown some signs of stabilization following the announcement of the 6·27 measures, but experts believe more time is needed to confirm whether this trend will hold. The next rate cut is expected to take place at the following Monetary Policy Committee meeting in October.

Experts also predict that the Bank of Korea will revise its economic growth forecast for this year upward to around 1%. This outlook is based on robust semiconductor-driven exports and a recovery in consumption in the second half of the year. However, they believe that the full impact of tariffs in the latter half of the year and prolonged sluggishness in construction investment will limit the extent of the growth rate rebound.

71.4% of Experts Expect "August Rate Freeze"..."Need to Monitor Housing Price Trend"

According to a survey conducted by Asia Economy from August 19 to 22 with 14 economic experts from domestic and foreign economic research institutes, securities firms, and banks, 10 respondents (71.4%) expected the base interest rate to remain at 2.50% this month. Among them, 4 experts anticipated a unanimous decision by the Monetary Policy Committee to maintain the rate.

The main reason cited was the ongoing real estate issues in certain areas of the Seoul metropolitan region. Experts noted that there is insufficient confidence in financial stability to justify a rate cut. According to the weekly apartment price trends released by Korea Real Estate Board on August 21, apartment prices in Seoul rose by 0.09% in the third week of August (as of August 18). While the pace of increase has slowed due to continued buyer caution, localized price hikes persist in some newly built or redevelopment complexes, supporting the upward trend in transaction prices. Bank of Korea Governor Lee Changyong also stated in a policy report to the National Assembly's Strategy and Finance Committee on August 19, "Although the overheated housing market and rising household debt in the Seoul metropolitan area have somewhat calmed since the 6·27 measures, housing prices in some parts of Seoul are still rising rapidly, so it is necessary to further monitor whether the trend will stabilize."

Gong Dongrak, a researcher at Daishin Securities, said, "While there is a clear downward risk to growth, which supports a rate cut stance, the central bank had directly emphasized factors such as the sharp rise in apartment prices in Seoul and increasing household debt as reasons for the July rate freeze. Given the need to further assess these factors, I expect the rate to remain unchanged this month." Park Jungwoo, an economist at Nomura Securities, also commented, "Although the economy is recovering, more time will be needed to confirm stabilization in the real estate market and household debt."

Lee Changyong, Governor of the Bank of Korea, is striking the gavel at the Monetary Policy Committee meeting held on the 10th of last month at the Bank of Korea in Jung-gu, Seoul. Bank of Korea

With the government supporting economic improvement through a supplementary budget and expanded fiscal policy, the environment has been created for the central bank to prioritize financial stability as consumer sentiment recovers. The historically high Korea-U.S. rate gap (2.00 percentage points) is also expected to be a burden. Although the U.S. Federal Reserve is likely to lower its policy rate in September, experts believe the Bank of Korea will choose to act after further assessment, considering other factors as well.

Yoon Yeosam, a researcher at Meritz Securities, said, "The importance of real estate and exchange rates has increased from a financial stability perspective rather than economic stimulus. Although there are signs of stabilization due to recent loan regulations, the safety of the real estate market and the high uncertainty of U.S. monetary policy need to be checked at the September FOMC to alleviate pressure on the exchange rate and domestic policy." Kang Minju, chief economist at ING Bank, also noted, "Although real estate prices are stabilizing, it is still insufficient to justify a rate cut. With inflation stabilizing in the 2% range, uncertainty is decreasing as tariff negotiations with the U.S. conclude, and private consumption is rebounding thanks to government policy support. Therefore, the Bank of Korea's policy focus will likely remain on financial stability."

On the other hand, the four experts (28.6%) who supported a rate cut in August highlighted the effectiveness of the 6·27 measures. While expectations for an August cut have somewhat diminished due to Governor Lee's recent comments on the housing market, considering the slowdown in U.S. indicators, deterioration in the domestic economy, and the linkage with fiscal policy, a rate cut response is likely. Heo Moonjong, head of the Woori Financial Management Research Center, said, "Given the sluggish construction sector and worsening export conditions due to mutual tariffs with the U.S., I expect a decision to cut the rate."

"Next Cut in October...Only One Additional Cut Expected This Year"

Ten experts (71.4%) predicted that the next base rate cut would occur in October, with some expecting it in November (2 experts) or at year-end (1 expert). Considering the need to confirm financial stability, such as real estate prices, the domestic economic situation, and the high likelihood of a U.S. rate cut in September, October is seen as the appropriate timing for a rate cut.

Ahn Jaegyun, a researcher at Korea Investment & Securities, said, "If a rate cut accompanies the execution of the supplementary budget, it can boost growth through the first half of next year. Additional stabilization in real estate prices can also be expected if the government announces housing supply measures, so the environment for a rate cut will be in place by October." Yoon also commented, "Given that the economy is likely to remain below its potential growth rate until next year, the easing bias in monetary policy will continue. Assuming the U.S. cuts rates in September, Korea is expected to lower its rate once in October." Kim Seongsu, a researcher at Hanwha Investment & Securities, also predicted, "In October, the effects of government loan regulations will become apparent, and the focus will shift to economic conditions that may require an additional rate cut."

Financial Policy Committee members, including Lee Changyong, Governor of the Bank of Korea, are holding a Monetary Policy Direction Decision Meeting of the Financial Policy Committee at the Bank of Korea in Jung-gu, Seoul, on the 10th of last month. Bank of Korea

Most experts (9 out of 14, or 64.3%) expect the final rate at the end of this year to be 2.25%, assuming one additional cut from the current 2.50%. Gong, the researcher, said, "While an accommodative monetary policy bias for economic stimulus seems inevitable, a larger rate cut would highlight concerns about interest rate differentials and financial stability. If a rate cut is implemented in October, it is likely to be the last one this year." Park Seokgil, an economist at JP Morgan, forecast, "Considering the economic cycle, the base rate will converge to a level slightly below the neutral rate."

Five experts (35.7%) predicted two additional cuts, expecting the rate to reach 2.00% per annum. Those forecasting a 2.00% rate focused on concerns about the economy. Moon Hongcheol, a researcher at DB Securities, said, "The real estate market remains a variable, but if household debt stabilizes, the focus will shift to concerns about sluggish domestic demand and weak export performance due to tariffs. As expectations for the new administration diminish, so will economic optimism." While there was some divergence in forecasts for the final rate next year, the most common expectation (7 experts, or 50.0%) was 2.00% per annum.

All Experts Say "U.S. Will Cut Rates in September"...57.1% Expect Two Cuts This Year

All experts agreed that the U.S. Federal Reserve will lower its policy rate at the next month's FOMC meeting, with the focus on a weakening labor market, including slower job growth. Fed Chair Jerome Powell also referenced the recent slowdown in employment at the Jackson Hole Symposium on August 22 (local time), stating, "We may need to adjust our policy stance," thereby reinforcing expectations for a September rate cut.

Economist Park Jungwoo said, "Although tariffs are putting upward pressure on inflation, recent inflation trends are within the Fed's expected range. The Fed will cut rates in September to address the slowdown in the labor market." Kang, the economist, added, "The labor market appears to have slowed sharply in the second quarter, and companies seem to be absorbing the shock from tariff-driven price increases at a higher level than expected, so the pass-through to consumers will likely be limited. Slower wage growth and falling home prices will suppress overall core inflation."

Regarding the number of U.S. rate cuts this year, a slight majority (8 experts, or 57.1%) expect two cuts. Those forecasting two cuts cited persistent tariff-related inflation and resilient service prices as obstacles. Yoon, the researcher, said, "The September rate cut will be implemented as a defensive measure against the economic slowdown caused by weaker employment, but ongoing concerns about tariff-driven inflation will limit the number of cuts to two this year." Moon, the researcher, also predicted that the September cut would be a "hawkish cut" (a rate cut with a tightening bias).

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 Seongsu, Researcher at Hanwha Investment & Securities; Moon Hongcheol, Researcher at DB Securities; Park Sanghyun, Researcher at iM Securities; Park Seokgil, Economist at JP Morgan; Park Jungwoo, Economist at Nomura Securities; Baek Yunmin, Researcher at Kyobo Securities; Ahn Jaegyun, Researcher at Korea Investment & Securities; Yoon Yeosam, Researcher at Meritz Securities; Jeong Seongtae, Researcher at Samsung Securities; Cho Youngmoo, Head of NH Financial Research Institute; Heo Moonjong, Head of Woori Financial Management Research Center