[Monetary Policy Poll] ① This Year's Rate Cuts Are Over... Next Year: "Cut in Q1 vs. Extended Freeze"

November Hold Highlights Instability in Real Estate and Exchange Rates
Upward Revision of Growth Outlook Expected to Ease Pressure for Rate Cuts
"Cut in Q1 vs. End of Easing Cycle" ... 2.25% Seen as Year-End Rate Next Year
U.S. Rate Cut Exp

With the Bank of Korea's Monetary Policy Committee set to make its final base rate decision of the year on November 27, all experts surveyed forecast a rate freeze at 2.50% per annum. Despite strong additional real estate measures such as the 10·15 policy, housing prices continue to rise in key regions, and growing exchange rate instability-threatening the 1,500 won mark-has further strengthened the case for maintaining the current rate this month.

Experts were sharply divided on the timing of the next rate cut. Some believe that, given persistent concerns about the economy despite slight improvements, an additional cut will come in the first quarter of next year. Others argue that financial instability factors-such as real estate and exchange rates-mean the rate-cutting cycle has effectively ended. As a result, Governor Lee Changyong's remarks at the press conference following the rate decision are expected to draw more attention than ever.

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 in Jung-gu, Seoul, on the 23rd of last month. Photo by Joint Press Corps

All Respondents Predict 'November Freeze'... "No Reason to Cut: Housing Prices, Exchange Rate, and Economic Outlook"

According to a survey conducted by The Asia Business Daily from November 18 to 21, targeting 13 economic experts from domestic and international research institutes, securities firms, and banks, all 13 respondents (100%) expected the base rate to be held at 2.50% this month. Among them, the majority (11 people, 84.6%) anticipated that some, such as Shin Sunghwan-known as a leading dove (favoring monetary easing) within the committee-might express a minority opinion in favor of a cut. However, two respondents predicted that even the dovish Shin would support a unanimous decision to maintain the rate.

The main reasons for the freeze outlook are ongoing instability in the real estate market and the sudden rise in exchange rate volatility. After the 10·15 measures, the upward trend in Seoul housing prices had slowed, but recently the pace of increase has picked up again. According to the Korea Real Estate Board, the average apartment sale price in Seoul rose by 0.20% in the third week of November (as of November 17) compared to the previous week. The average apartment sale price in Seoul had surged by 0.50% in the third week of October, right after the 10·15 measures were announced, then slowed to 0.23% in the fourth week of October, 0.19% in the first week of November, and 0.17% in the second week, before expanding again after four weeks. While listings have decreased and transactions have slowed, leading to a wait-and-see mood, demand for "one solid home" in preferred areas has been partially absorbed. Baek Yunmin, a researcher at Kyobo Securities, noted, "Although the 10·15 real estate loan regulation policy has slowed the rate of price increases, concerns about side effects such as the balloon effect remain, making it likely that the Bank of Korea will freeze the rate."

Rising exchange rate volatility is also a key factor supporting a rate freeze this month. On November 21, the won-dollar exchange rate closed at 1,475.6 won in the Seoul foreign exchange market (as of 3:30 p.m.), the highest level since April 9, when fears of a U.S. tariff war were at their peak (1,484.1 won), threatening the 1,500 won threshold. The real effective exchange rate, which reflects the won's actual purchasing power, is also at its lowest level since the global financial crisis. According to the Bank of Korea's Economic Statistics System (ECOS), Korea's real effective exchange rate index stood at 89.09 (2020=100) at the end of October this year. This is the lowest in 16 years and 2 months since August 2009 (88.88) during the global financial crisis, and even lower than the 89.29 recorded at the end of March this year, when domestic political uncertainty peaked due to the emergency martial law crisis. Yoon Yeosam, a researcher at Meritz Securities, commented, "Even if the impact of the external interest rate differential is low, a rising exchange rate is a burden for the rate decision."

The expectation that the Bank of Korea will revise its economic outlook upward for this year and next year is also seen as easing the pressure for a rate cut. Park Seokgil, an economist at JP Morgan, said, "Given that recent growth and inflation have exceeded expectations and that uncertainties in U.S. tariff and investment negotiations have eased somewhat, the Bank of Korea is expected to revise next year's growth rate upward, which will likely lead to further adjustments in the pace of rate cuts."

"Cut in Q1 vs. Cycle Is Over": Opinions Split... Final Rate Next Year at 2.25%

The majority of experts (7 people, 53.8%) forecast that the final rate next year will be 2.25% after one more cut. On the other hand, a significant number (4 people, 30.8%) believe the rate-cutting cycle has effectively ended and that the rate will remain frozen for an extended period.

Among those who expect a rate cut next year, four respondents (30.8%) predicted the next cut would come in the first quarter. Kang Minju, Chief Economist at ING Bank, said, "A rate cut will be implemented after confirming improvements in global financial market sentiment following a Fed rate cut, reduced exchange rate volatility, stabilization of domestic demand, and the gradual stabilization of the real estate market due to the 10·15 measures," forecasting an additional cut around February next year. Park Sanghyun, a researcher at iM Securities, also said, "Although the domestic economy is improving, the recovery in domestic demand remains weak, so an additional rate cut will be needed around the first quarter of next year."

Lee Changyong, Governor of the Bank of Korea, is presiding over the Monetary Policy Committee plenary meeting at the Bank of Korea in Jung-gu, Seoul, on the 23rd of last month. Photo by Joint Press Corps

Three respondents (23.1%) predicted the next cut would come in the third quarter of next year. Ahn Jaegyun, a researcher at Korea Investment & Securities, explained, "There are concerns about a shift to a slowdown in consumption-driven domestic demand after the second quarter next year. If domestic demand weakens, expectations will form for a combination of a supplementary budget and a rate cut policy." Kang Seungwon, a researcher at NH Investment & Securities, said, "The recovery outside semiconductors remains distant. As the U.S. rate-cutting cycle continues, the rate-cutting cycle here will resume after exchange rate and real estate market stability is confirmed," predicting an additional cut around July next year.

Conversely, four experts (30.8%) predicted the rate-cutting cycle has effectively ended. Kim Seongsu, a researcher at Hanwha Investment & Securities, said, "U.S. cash investments and Korea-U.S. exchange rate negotiations have generally limited the authorities' ability to stabilize the foreign exchange market. Once the gap between GDP and potential growth rate is closed, the need for monetary policy responses to support growth will diminish significantly." Researcher Yoon also noted, "There is a need to monitor financial stability in real estate and exchange rates, and as economic conditions improve to match potential growth on an annual basis, the need for a rate cut will decrease."

76.9% Predict "Fed Cut in December"... Year-End Rate Seen at 3.25%

Ten experts (76.9%) predicted that the Federal Reserve would cut rates at the December Federal Open Market Committee (FOMC) meeting. The analysis is that pressure for a rate cut will remain due to weakening U.S. employment data. Gong Dongrak, a researcher at Daishin Securities, commented, "The balance between employment and inflation conditions is shifting, with the focus moving toward employment." Ahn Yeha, a researcher at Kiwoom Securities, also said, "Given that the ongoing slowdown in employment has been confirmed through private data during the process of implementing an insurance rate cut, an additional rate cut in December is expected. The end of the Fed's quantitative tightening (QT, balance sheet reduction) is also set to begin in December, so policy signals are likely to be aligned."

However, some pointed out that the timing of the cut could be delayed until after January next year, as the confirmation of macroeconomic indicators is being postponed due to the U.S. federal government shutdown, and hawkish committee members remain wary of inflation.

Seven experts (53.8%) expected the Fed's final rate next year to be 3.25% at the upper bound. Researcher Baek noted, "As economic indicators are gradually confirmed, expectations for a rate cut will rise again."

Experts Who Participated 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 Hongchul, Researcher at DB Securities; Park Sanghyun, Researcher at iM Securities; Park Seokgil, Economist at JP Morgan; Baek Yunmin, Researcher at Kyobo Securities; Ahn Yeha, Researcher at Kiwoom 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