Sangsangin: "November Monetary Policy Board Expected to Hold Rates... True Intent Behind Rhee Changyong's Remarks Must Be Discerned"

Sangsangin Securities has forecast that the Bank of Korea’s Monetary Policy Board will keep the base interest rate unchanged at 2.5% at its upcoming meeting on the 27th. The company noted that, after four consecutive decisions to hold rates steady, the key issue will be to discern the true intent behind Governor Rhee Changyong’s remarks regarding a potential policy shift. In addition, the company predicted that the Bank of Korea will raise its economic growth forecast for Korea for 2026 by 0.3 percentage points to 1.9% at this meeting.

Yonhap News

Shin Eol, a researcher at Sangsangin Securities, stated in a report titled “November Monetary Policy Board Preview: Seeking the Governor’s True Intent Amid Rate Freeze” on the 21st, “The November meeting of the Monetary Policy Board will maintain the current base rate of 2.50%.” Accordingly, the previous outlook of “rate freeze in the third quarter and rate cut in the fourth quarter” following the rate cut in May has been revised to “rate freeze in the second half of the year.”

Nevertheless, Shin noted, “The need for a rate cut remains valid, considering the continued negative output gap in gross domestic product (GDP) and the stable trend in inflation. Since the real base rate is fluctuating around +0.3%, there is still room for a rate cut from the perspectives of growth and inflation.” He added, “The Monetary Policy Board acknowledges this, but since Governor Rhee Changyong recently mentioned the possibility of a policy shift in a foreign media interview, this meeting will require a reconfirmation of the grounds for such a judgment.” Previously, immediately after Governor Rhee’s foreign media interview containing the phrase “even the change of direction” was released, government bond yields surged and the bond market experienced volatility.

Shin identified three main factors influencing the timing of a rate cut: uncertainty over a possible rate cut by the US Federal Reserve in December, the resulting depreciation trend of the Korean won in the foreign exchange market, and concerns about instability in the Seoul housing market. He explained that these were the reasons for revising his outlook to a rate freeze in November, adding, “If financial instability factors subside and the likelihood of a Fed rate cut increases and materializes, a rate cut by the Bank of Korea would help alleviate burdens.”

Regarding the weakness of the Korean won, Shin assessed that the possibility of a reversal to appreciation is limited until early December. He said, “A heightened possibility of a Fed rate cut in December, a shift by hawkish Fed officials toward a neutral stance, and appreciation of other key currencies such as the Japanese yen would all need to occur. However, seasonal factors around November are unfavorable for the won, and the simultaneous occurrence of these factors will inevitably take time, making foreign exchange market pressure a source of instability for domestic financial markets at year-end.”

At next week’s Monetary Policy Board meeting, the Bank of Korea is also scheduled to update its revised economic outlook for November. On this, Shin forecast that Korea’s growth rate projections will be raised by 0.2 percentage points to 1.1% for 2025 and by 0.3 percentage points to 1.9% for 2026 compared to previous forecasts. He presented his base scenario as follows: “The future rate path will reach a final level of 2.00% in this rate cut cycle, with one rate cut each in the first and second halves of 2026.”