The Bank of Korea's Monetary Policy Committee has frozen the base rate, while opinions in the securities industry are divided on the direction of interest rates for August. Some predict that there will be another cut to stimulate the economy, but there are also many who believe that the base rate will be frozen again to confirm the effects of policies in light of the recent surge in housing prices, mainly in the capital region.
The Monetary Policy Committee maintained the base rate at the current 2.5% during its regular meeting on the 10th. The committee has made decisions to lower rates in October and November of last year, and froze rates in January and April of this year, while lowering them again in February and May.
Securities company researchers agreed that the Monetary Policy Committee will lower rates further in the second half of this year. The reason is that if construction investment recovers slowly and exports weaken due to the tariff policy of the Donald Trump administration, additional rate cuts will be necessary for economic stimulus.
However, opinions diverged on whether the Monetary Policy Committee will lower rates at the August meeting. This is because there needs to be time to confirm whether the real estate market is stabilizing after the household loan regulations implemented on June 27.
Heo Jeong-in, a researcher at DAOL Investment & Securities, maintained his forecast for two rate cuts within the year but anticipated decisions to lower rates would happen in October and November, not August. He stated, “I believe that rates will be lowered after evaluating the real estate market until August for recovery in private consumption.”
Shin Eol, a researcher at Sangsangin Investment & Securities, considered there was a high likelihood of one rate cut in the fourth quarter (October to December) this year. He said, “It will be possible to lower rates once the imbalance factors in the housing market and household liability issues that disrupt financial stability stabilize,” adding, “Confirmation is necessary until the third quarter (July to September).”
There was also analysis that the recent rise in inflation rates should be taken into account. Ben Luk, a chief multi-asset strategist at State Street, a global custodian bank, noted, “Currently, Korea's online prices are at their highest level in the last three years and exceed the official inflation figures,” adding, “Since the Monetary Policy Committee's decision to lower rates could send mixed signals to the market, I don’t think they will lower rates in August.”
In contrast, four of the seven commissioners of the Monetary Policy Committee left open the possibility of a rate cut within three months, and through the July monetary policy direction resolution, it was evaluated that “the housing market shows some stabilization after the government's household liability measures were implemented,” supporting the argument that rates might be cut in August.
An Ye-ha, a researcher at Kiwoom Securities, stated, “Of course, while verifying the impact of the household loan regulations, the timing of cuts may be postponed to October, but I maintain the outlook that rates will be lowered in August and then frozen for the rest of the year.”
Kang Seung-won, a researcher at NH Investment & Securities, said rates could be lowered twice by the end of the year, including the one in August. He stated, “Due to the realization of the government's real estate policy effects, the confirmation of signals for a rate cut in September at this month’s Federal Open Market Committee meeting, and the adjustment of tariffs in the United States, the Monetary Policy Committee could still lower rates further in August.”