This year, the Bank of Korea, which lowered the benchmark interest rate to 2.50% in two reductions, is expected to take a breather this month. Experts predicted that the Bank of Korea will freeze the benchmark interest rate at the Monetary Policy Committee meeting scheduled for the 10th. Many experts expect the Bank of Korea to consider interest rate cuts next month while observing tariff negotiations with the United States and the increase in household debt.
According to a survey conducted by ChosunBiz on Nov. 6 targeting 11 macroeconomics and bond experts from domestic securities firms, all respondents believed the benchmark interest rate would remain at the current 2.50%. The Bank of Korea lowered the benchmark interest rate by 0.25 percentage points each in February and May of this year, but it seems they will adjust the pace this month while monitoring the domestic and external situation.
◇ "Concerns about financial stability due to rising household debt and housing prices"
Experts noted that the increase in household loans has accelerated as housing prices have soared recently, particularly around the capital region. According to the financial sector, the outstanding household loan balance at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) at the end of last month stood at 754.8348 trillion won, a rise of 6.7536 trillion won compared to the end of May (748.0812 trillion won). This marks the highest level in 10 months since the record increase of 9.6259 trillion won in August of last year.
Although the government has tightened regulations by lowering the mortgage loan limit to 600 million won since the 28th of last month, the increase in household loans is expected to continue for the time being. This is because the volume of housing transactions increased following the temporary lifting then re-imposition of land transaction permits applied in the three districts of Gangnam (Seocho, Gangnam, Songpa) last February. Typically, there is a lag of 1 to 3 months from the housing transaction to the execution of the loan.
The Bank of Korea has also indicated its stance that the surge in household loans may continue until the end of the third quarter this year, as stated in a recent report by the Presidential Committee on Policy Planning. The Bank stated, "The housing market in the capital region is showing signs of overheating, surpassing both price increases and transaction volumes compared to August of last year, which has increased the household debt risk," adding, "The influence of the housing market overheating could lead to a surge in household loans during the months of August and September."
Yoon Yeosam, a researcher at MERITZ Securities, stated, "Recent fluctuations in real estate prices in the capital region have heightened concerns about rising household debt," adding that the Bank of Korea would take a cautious approach to interest rate cuts. Jointly, Lee Sang-rok, an economist at DAISHIN SECURITIES, also mentioned, "Concerns about potential financial instability resulting from the recent soaring housing prices in Seoul and increased household loans could be a restricting factor that delays the timing of interest rate cuts."
There are projections that the Bank of Korea will decide on interest rate cuts after observing the effects of the second supplementary budget proposal. The government submitted a supplementary budget plan worth 30.5 trillion won to the National Assembly last month to boost domestic demand, which was confirmed at 31.8 trillion won after going through preliminary deliberations at each standing committee on the 4th. As the government moves to bolster the economy through fiscal policy, the Bank of Korea can now afford to decide on the timing of interest rate cuts.
Moon Hong-cheol, a researcher at DB Financial Investment, predicted, "The Bank of Korea will monitor the effects of previous interest rate cuts and closely examine recent household debt and real estate market trends before proceeding to cut rates." Kim Seong-soo, head researcher at Hanwha Investment & Securities, mentioned, "As political events like the early presidential election have ended, the situation now allows for economic stimulus through fiscal policy," adding that, "There is a lack of justification for a series of interest rate cuts."
◇ Additional cuts expected in August… 64% of experts predict final rate at 2.25%
The vast majority of experts expect the Bank of Korea's easing policy to resume in the near future. Among 11 experts, 10 (90.9%) anticipate that the Bank of Korea will lower rates in August, while the remaining one (9.1%) predicts October. This stems from the ongoing downward pressure on the economy due to the potential contraction of global trade resulting from U.S. tariff policies.
In particular, the likelihood of a hit to exports, which underpin the economy of our country, is high. According to a report recently released by the Korea International Trade Association, the total U.S. imports from January to April this year reached $1.2242 trillion, a 19.2% increase compared to the same period last year, but imports from Korea only decreased by 5.0% to $41.7 billion. Korea's market share in the U.S. import market dropped from 4.0% last year to 3.4% this year, falling from 7th to 10th place.
Kang Seung-won, head of the bond strategy team at NH Investment & Securities, stated, "If tariffs come out stronger than expected, growth rates could fall further," adding that "we need to watch for next week's announcement regarding the expiration of tariff exemptions." Ahn Ye-ha, a researcher at Kiwoom Securities, mentioned, "Concerns about weakened economic demand due to U.S. tariff policies persist, which suggests that the Bank of Korea will keep the possibility of further cuts open."
However, there were mixed forecasts regarding the level of the benchmark interest rate at the end of the year. Among the 11 experts, 7 (63.6%) expect it to be 2.25%, while the other 4 (36.4%) expect it to be 2.00%. Assuming the Bank of Korea cuts rates by 0.25 percentage points each time, the 7 experts anticipate one more cut, while the 4 predict two additional cuts.
Jo Yong-gu, a researcher at Shinyoung Securities, who forecasts 2.25%, stated, "As the economic outlook improves and given the government's expansionary fiscal policy, monetary policy will coordinate with economic responses while being cautious of excessive easing in light of household debt and other financial stability aspects." Ahn Jae-kyun, a researcher at Shinhan Investment & Securities, indicated that "following the implementation of the second supplementary budget in early July, the Bank of Korea is expected to explore additional rate cuts and will likely lower rates once more in August."
Baek Yoon-min, a researcher at Kyobo Securities, predicted 2.00%, saying, "It is true that expectations for rate cuts have somewhat retreated due to the recent overheating in the housing market and increasing household debt risks, but since the government is strengthening its management of household debt and there are still significant downward pressures on domestic growth, additional monetary easing is necessary." Lee Jung-hoon, a researcher at Eugene Securities, also mentioned, "As 0.8% annual growth is not sufficient, I expect rates to be lowered to around 2.0% by the end of the year."