[Monetary Policy Board Poll] ① All Forecast "January Rate Freeze"... Outlook Divided for This Year: '2.50% vs 2.25%'

Survey of 13 Domestic and International Economic Experts by Asia Business Daily
Persistent Instability in Foreign Exchange and Real Estate Markets Drives Rate Freeze
"One More Cut This Year" vs. "Freeze Through Year-End"?Opinions Split
US: Next R

Ahead of the Bank of Korea’s Monetary Policy Board’s first base rate decision of the year on January 15, all experts surveyed forecast that the rate would be held steady at 2.50% per annum. Persistent instability in the foreign exchange and real estate markets was cited as the main reason for this month’s expected freeze. However, opinions among experts were sharply divided regarding the timing of the next rate cut. While many expect an additional cut considering the potential weakening of growth momentum in the second half of the year, a significant number also believe that the overall trend of economic improvement this year, with a focus on financial stability, could result in a prolonged pause in monetary policy adjustments.

All Respondents Forecast a January Freeze... "Real Estate and Exchange Rate Risks Continue to Threaten Financial Stability"

According to a survey conducted by The Asia Business Daily from January 6 to 9 with 13 economic experts from domestic and international economic research institutes, securities firms, and banks, all 13 respondents (100%) predicted that the base rate would be maintained at 2.50% this month. Among them, four (30.8%) anticipated a "unanimous decision to hold." If this forecast holds true, it would mark the fifth consecutive freeze, following those in July, August, October, and November last year.

The main factors driving this outlook are ongoing instability in the foreign exchange and real estate markets. At the end of last year, the foreign exchange authorities implemented comprehensive measures to stabilize the exchange rate, which had surged past 1,480 won per dollar, leading to a temporary calming. However, with the start of the new year, the won-dollar exchange rate has once again risen above the 1,450 won level. Housing prices in major areas of Seoul and the metropolitan region also continue to climb.

Kang Seungwon, a researcher at NH Investment & Securities, stated, "At the Monetary Policy Board meeting in November last year, the Bank of Korea prioritized financial stability as the top policy criterion. Since then, the slowdown in real estate prices has stalled, and the exchange rate remains exposed to upward risks," forecasting a rate freeze. Park Seokgil, an economist at JP Morgan, commented, "Although fourth-quarter growth data is expected to fall short of the Bank of Korea’s November forecast, the pass-through effect of the exchange rate on the consumer price index has been stronger than expected, and the authorities’ commitment to exchange rate stability remains strong. Therefore, the rate freeze is likely to continue."

Han Junhee, Senior Researcher at NH Financial Research Institute, noted, "Consumer prices are experiencing moderate upward pressure near the target level, and uncertainties remain regarding the pace of the US Federal Reserve’s rate cuts, the Korea-US interest rate gap, exchange rate volatility, and rising household debt pressures. Under these conditions, it is unlikely that the Monetary Policy Board will preemptively cut rates in January." The consensus is that this meeting will focus more on reviewing external conditions and reaffirming a cautious approach to monetary policy, rather than shifting policy direction.

Kang Minju, Chief Economist at ING Bank, observed, "While the semiconductor-led economic recovery continues, improvements in domestic demand and other key industries remain weak. The ongoing negative gap between actual GDP and potential GDP and the still-restrictive current interest rate level may prompt a minority to advocate for a cut." However, the overall view of the Monetary Policy Board is expected to focus on the highly volatile won-dollar exchange rate and the slower-than-expected stabilization of the Seoul real estate market, leading to a decision to hold rates steady.

Lee Changyong, Governor of the Bank of Korea, is speaking at the briefing session on the status of inflation targeting held at the Bank of Korea in Jung-gu, Seoul, on December 17 last year. Photo by Yonhap News Agency, Joint Press Corps

Continued Easing Stance, but Caution Intensifies... Interpreting This Year's Monetary Policy Direction

Regarding potential changes in monetary policy direction, the prevailing expert view is that "the commitment to monetary easing has weakened, but no significant changes are expected immediately." In the most recent Monetary Policy Board statement, the phrase "timing and pace of additional rate cuts" was revised to "whether and when additional cuts will occur."

Ahn Jaegyun, a researcher at Korea Investment & Securities, pointed out, "It will be difficult to change the direction of monetary policy until the negative GDP gap is closed and the potential growth rate rebounds." He added, "The change in language reflects a more data-dependent approach that emphasizes meeting certain conditions rather than assuming a path based on rate cuts. It should be seen as a reaffirmation of policy caution rather than a shift in the easing stance itself." However, Yoon Yeosam, a researcher at Meritz Securities, suggested, "Depending on whether inflation forecasts are further raised in the Bank of Korea’s February economic outlook, the likelihood of a rate cut could diminish further."

Moon Hongchul, a researcher at DB Financial Investment, stated, "Depending on the degree of exchange rate stabilization going forward, the possibility of an additional cut could reemerge. One to three board members may provide forward guidance indicating the need to keep the door open for a cut within the next three months." Kang, the economist, also predicted, "Given ongoing uncertainties in the economic outlook, guidance for a continued easing stance will likely be maintained through the first half of the year, but minority and conditional three-month forecasts will gradually shift toward a consensus for holding rates steady."

"One More Cut" vs. "Hold for the Year"... When Is the Next Rate Cut?

Opinions were sharply divided on whether there would be an additional rate cut this year. Seven experts (53.8%) believed there would be one more cut, bringing the final rate for the year to 2.25%, while six (46.2%) expected the rate to be held at 2.50% throughout the year.

There was a range of views on the timing of the next cut, but none of the experts anticipated an additional cut in the first quarter of this year. Four respondents expected a cut in the third quarter, the largest group, followed by two in the second quarter and one in the fourth quarter. Baek Yoonmin, a researcher at Kyobo Securities, analyzed, "Considering the high base effect for growth and the potential weakening of growth momentum in the second half, the need for an additional rate cut in the third quarter could become more pronounced." Park Sanghyun, a researcher at iM Securities, also commented, "Although the domestic economy is visibly improving due to strong semiconductor exports, financial instability factors such as rising apartment prices remain. Therefore, the freeze is likely to continue in the first half, with a rate cut possible if the economic improvement weakens in the second half." Heo Moonjong, head of the Woori Financial Management Research Institute, added, "Despite a recovery in growth this year, the trend will still fall slightly short of potential. The Bank of Korea is likely to cut rates again in the second or third quarter, balancing financial stability and support for economic recovery."

On the other hand, many experts argued that a focus on financial stability amid economic improvement could lead to a prolonged pause in monetary policy adjustments this year. Yoon, the researcher, noted, "If the semiconductor supercycle slows in the second half and the 2027 budget is reduced to a mid-term balanced level of within 5%, the need for monetary easing could reemerge as the fiscal-driven growth trend of 2025 and 2026 weakens, potentially leading to another cut in the first quarter of next year." Moon, the researcher, also pointed out, "Although a rate cut is needed due to deepening polarization under K-shaped growth, monetary easing will be difficult due to exchange rate, external environment, and tariff uncertainties, which could further weaken the domestic economy. An additional cut may be necessary next year." Jeong Seongtae, a researcher at Samsung Securities, also predicted that the rate would be held steady within the year due to factors such as improving growth, rising exchange rates, and increasing inflationary pressures.

By the end of next year, the most common forecast among experts (five, or 38.5%) was for the final rate to be 2.00%, 0.50 percentage points lower than the current level. Four (30.8%) expected only one additional cut by 2027, while three (23.1%) projected no further cuts even next year.

Lee Changyong, Governor of the Bank of Korea. Photo by Yonhap News Agency, Joint Press Corps

U.S. Next Rate Cut Expected in "March"... Most See This Year's Final Rate Ceiling at 3.25%

Six experts (46.2%) expected the next U.S. policy rate cut to come in March. Given the recently released growth and inflation data, many believe the Federal Reserve is more likely to pause and observe the situation rather than proceed with additional cuts immediately. One senior researcher explained, "The U.S. consumer price inflation rate slowed to about 2.7% year-on-year at the end of last year, but it still exceeds the Fed’s target of 2.0%. There are also signs of weakening employment growth momentum in the labor market." He continued, "If these conditions persist, there is a high likelihood that the first rate cut of the year will be implemented at the March Federal Open Market Committee (FOMC) meeting, once sufficient data has been accumulated."

Some experts forecast the next cut to come after June. Yoon, the researcher, said, "While sentiment indicators in the U.S. have weakened, real indicators centered on GDP remain solid. After consecutive cuts in September, October, and December last year due to employment contraction, the Fed will likely assess the effects before another cut, which I expect around June." There is also a forecast that a new Fed chair will take office in May after Jerome Powell’s term ends, and the rate cut cycle will resume. Kim Seongsu, a researcher at Hanwha Investment & Securities, commented, "I believe sufficient preemptive action has been taken regarding employment and other factors. After observing the effects of policy lags, an additional cut is likely in the third quarter."

The most common forecast for the U.S. final rate ceiling this year was 3.25%, with nine experts (69.2%) expecting this outcome. This would mean two 0.25 percentage point cuts from the current level of 3.75%. Baek, the researcher, predicted, "Although the pace of the Fed’s monetary policy easing will slow somewhat, a gradual easing stance will continue this year, and the rate cut trend will be maintained until the neutral level is reached." Yoon, the researcher, added, "Given the increased divergence in the Fed’s dot plot and considering the market consensus for a neutral rate around 3%, two cuts-one in each half of the year-are likely." However, experts also noted that the upcoming U.S. midterm elections could act as an additional variable in monetary policy operations.

Experts Participating in the Survey (in alphabetical order)

Kang Minju, Chief Economist at ING Bank; Kang Seungwon, Researcher at NH Investment & Securities; Kim Seongsu, Researcher at Hanwha Investment & Securities; Moon Hongchul, Researcher at DB Financial Investment; Park Sanghyun, Researcher at iM Securities; Park Seokgil, Economist at JP Morgan; Baek Yoonmin, 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; Han Junhee, Senior Researcher at NH Financial Research Institute; Heo Moonjong, Head of Woori Financial Management Research Institute