[Monetary Policy Poll] ① October Hold... 66.7% Expect November Cut vs "Easing Cycle Over"

100% Expect October Rate Freeze... Divergence on Timing of Next Cut
66.7% Project November Cut... Some See "Second Half of Next Year" or "End of Rate Cut Cycle"
All Eyes on Governor Lee Changyong's Message After Rate Decision
Half Forecast

With the Monetary Policy Committee of the Bank of Korea set to decide on the base interest rate on October 23, all experts surveyed predicted that the rate would be held steady at 2.50% per annum. This outlook is attributed to the intensifying surge in housing prices, especially following a wave of 'panic buying' in key areas of the Seoul metropolitan region after the Chuseok holiday. Growing concerns over exchange rate volatility, fueled by disagreements between South Korea and the United States regarding $350 billion in U.S.-bound investments, were also cited as factors supporting a rate freeze this month.

Experts forecast that the market will pay closer attention than ever to the remarks of Bank of Korea Governor Lee Changyong at the press conference following this Monetary Policy Committee meeting. In fact, there was significant divergence among experts regarding the timing of the next rate cut. While most predicted a cut in November, some anticipated a delay until the first or second half of next year. Some even suggested that with ongoing instability in the real estate market but improved export prospects, the rate-cutting cycle has effectively ended.

Lee Changyong, Governor of the Bank of Korea, is striking the gavel at the Monetary Policy Committee meeting held at the Bank of Korea in Jung-gu, Seoul on August 28. Photo by Joint Press Corps

100% of Experts Predict 'October Hold': "Real Estate, Exchange Rate... Financial Stability Risks"

According to a survey conducted by The Asia Business Daily of 15 economic experts from domestic and international economic research institutes, securities firms, and banks between October 14 and 17, all 15 respondents (100%) expected the base interest rate to remain at 2.50% this month. Of these, 10 believed the decision to hold would be unanimous among committee members.

The main factor cited was the overheating of the real estate market, which has escalated to panic buying. According to weekly apartment price trends released by the Korea Real Estate Board, apartment prices in Seoul surged by 0.54% in the second week of October (as of the 13th). Due to the Chuseok holiday, this week's price trend was reported as a cumulative figure for the first two weeks of October. The Han River Belt areas, including Seongdong District (1.63%), Gwangjin District (1.49%), and Mapo District (1.29%), which were expected to be newly designated as regulated zones, saw a clear upward trend as demand for gap investments (purchases with existing rental contracts) surged at the last minute. Preferred areas in southern Gyeonggi Province, which are also designated as regulated or land transaction permit zones along with Seoul, experienced a widening price increase. Ahn Yeha, a researcher at Kiwoom Securities, predicted, "Given the government's strong real estate policy regulations such as the October 15 measures, the Bank of Korea is likely to freeze rates in policy coordination." Heo Moonjong, head of the Woori Financial Management Research Institute, also projected, "The need for financial stability related to housing prices in the metropolitan area will lead to a rate hold."

Exchange rate volatility, with the won-dollar rate soaring well above 1,400 won, was also seen as a burden. The won-dollar exchange rate recently climbed back above the 1,400 mark due to uncertainties in U.S.-bound investment negotiations and the resumption of the U.S.-China trade dispute. Ahn Jaegyun, a researcher at Korea Investment & Securities, noted, "With growing concerns over financial instability in both the real estate and foreign exchange markets, the rationale for further rate cuts has disappeared." Baek Yoonmin, a researcher at Kyobo Securities, added, "While from a fundamentals perspective, further rate cuts by the Bank of Korea are still warranted, the Monetary Policy Committee's stance is focused on responding to financial stability risks such as household debt and the exchange rate, so caution toward additional cuts will persist." Kang Minjoo, chief economist at ING Bank, also judged, "A rebound in real estate prices in the metropolitan area, delays in tariff negotiations with the U.S., and a weakening won will all act as factors delaying the timing of a rate cut by the Bank of Korea."

66.7% Expect Next Cut in November... Some See 'Second Half Next Year' or 'End of Easing Cycle'

The largest group of experts, 10 (66.7%), predicted the next rate cut would occur in November. While there is a need to assess the impact of the October 15 measures, many believe that the need for economic stimulus makes it difficult to delay a cut further.

Moon Hongchul, a researcher at DB Securities, emphasized, "In the short term, exchange rate instability due to U.S. negotiations remains, and key real estate prices are still rising, making a rate cut difficult for now. However, with concerns over domestic demand and stable inflation, a cut is likely within the year." Park Sanghyun, a researcher at iM Securities, also said, "If the real estate market stabilizes, a rate cut is still needed to boost domestic demand. If tariff negotiations with the U.S. are concluded and the exchange rate stabilizes, a cut may come in November."

On the other hand, some predicted a cut in the first half of next year (3 experts), the second half (1 expert), or the end of the easing cycle (1 expert). Kim Jinil, professor of economics at Korea University, noted, "Additional cuts will only be possible when the real estate market is managed more stably, so it will likely be the first half of next year." Ahn Jaegyun, a researcher, commented, "While the government is likely to introduce further real estate regulations, the Bank of Korea may also switch to a rate hold in terms of tightening regulations. With better-than-expected growth likely to continue at least through the first quarter of next year, the urgency for a base rate cut has diminished. If cuts continue, the third quarter (July) of next year is most likely."

Park Jungwoo, economist at Nomura Securities, believes the easing cycle has effectively ended. He stated, "Instability in the real estate market is due to structural factors such as supply shortages, and the current demand-focused policies based on loan regulations will only have short-term effects. With export prospects likely to be revised upward next year, the chances of further cuts are low." He added that since the neutral rate range for financial stability is estimated at 2.5-2.75%, the current 2.5% is sufficient to support economic recovery.

Apartment complexes in the Seocho and Yongsan districts as seen from Namsan, Seoul. Photo by Yonhap News Agency

46.7% Expect Final Rate of 2.00% Next Year... 33.3% See 2.25%

The largest group of experts, 7 (46.7%), predicted the final base rate for next year would be 2.00%. This suggests that after one rate cut this year, another cut is expected next year. Gong Dongrak, a researcher at Daishin Securities, said, "After a rate cut in November this year reflecting an accommodative monetary policy stance for economic stimulus, another cut is likely next year due to a potential decline in the neutral rate as potential growth slows. This is a form of rate normalization."

Five respondents (33.3%) expected the final base rate for next year to be 2.25%. Yoon Yeosam, a researcher at Meritz Securities, explained, "While there are factors for monetary easing such as a U.S. policy rate cut and uncertainty over U.S.-Korea tariff negotiations, controlling the real estate market is a key target from a financial stability perspective. With economic growth likely to improve to the high 1% to 2% range after a U.S.-Korea tariff agreement, the Bank of Korea is likely to remain cautious about further cuts at 2.25%." He also noted that with inflation expected to exceed the target, the Bank of Korea will be cautious about further easing at the neutral rate level.

U.S.: 73.3% Expect 'October Cut' Amid Cooling Job Market... 80% See Final Rate at 3.75% This Year

Eleven experts (73.3%) predicted the U.S. Federal Reserve would cut rates at the October Federal Open Market Committee (FOMC) meeting. This is based on the assessment that, while concerns over tariff-driven inflation are not significant, the job market is cooling rapidly. The spread of downside risks to the economy due to the federal government shutdown (Shut Down·temporary suspension of government work) and ongoing U.S. trade war issues are also seen as factors increasing the need for a cut.

Twelve experts (80%) predicted the upper bound of the final U.S. policy rate this year would be 3.75%. Researcher Moon said, "I expect additional rate cuts of 0.25 percentage points each in October and December. With the employment situation deteriorating and no sign of tariff-driven inflation, the environment is set for rate cuts." However, since the Federal Reserve views the slowdown in nonfarm employment due to slower population growth as a natural phenomenon, he noted that the pace of cuts will be gradual.

Eight experts (53.3%) predicted the upper bound of the final U.S. policy rate next year would be 3.25%. Researcher Yoon said, "While the risk of a recession is low, the need for monetary policy support will become more prominent ahead of next year's midterm elections, so rate cuts are likely to continue to the low 3% range, which is considered the neutral rate."

Experts Participating in the Survey (in alphabetical order)

Kang Minjoo, Chief Economist, ING Bank; Kang Seungwon, Researcher, NH Investment & Securities; Gong Dongrak, Researcher, Daishin Securities; Kim Seongsu, Researcher, Hanwha Investment & Securities; Kim Jinil, Professor of Economics, Korea University; Moon Hongchul, Researcher, DB Securities; Park Sanghyun, Researcher, iM Securities; Park Seokgil, Economist, JP Morgan; Park Jungwoo, Economist, Nomura Securities; Baek Yoonmin, Researcher, Kyobo Securities; Ahn Yeha, Researcher, Kiwoom Securities; Ahn Jaegyun, Researcher, Korea Investment & Securities; Yoon Yeosam, Researcher, Meritz Securities; Cho Youngmoo, Head, NH Financial Research Institute; Heo Moonjong, Head, Woori Financial Management Research Institute