The Bank of Korea, which lowered the benchmark interest rate last month, is expected to take a breather. Experts predicted that the Bank of Korea would keep the benchmark interest rate unchanged at 2.75% per year during the Monetary Policy Committee meeting scheduled for the 17th. However, most experts forecasted that the rate would be lowered at the May Monetary Policy Committee meeting due to growing concerns about economic slowdown.
ChosunBiz conducted a survey of 10 macroeconomic and bond experts from domestic securities firms on the 13th, and all respondents projected that the benchmark interest rate would remain unchanged at the current 2.75% during the Bank of Korea's Monetary Policy Committee meeting on the 17th. This suggests that the Bank of Korea's easing monetary policy, which began in February of this year, may temporarily pause.
◇ Experts 100% say 'no change' for April… Impact of exchange rates and household debt is concerning
Experts pointed to the volatility in exchange rates due to the reciprocal tariffs imposed by U.S. President Donald Trump as a major factor for the freeze. On the 12th of last month, when the U.S. imposed itemized tariffs on steel and aluminum, the won-dollar exchange rate exceeded 1,450 won, surging to as high as 1,487.6 won on the 9th, the day the reciprocal tariffs took effect. Although the exchange rate stabilized somewhat after news of a temporary suspension of the tariffs, it is still well above 1,400 won.
President Trump imposed a 10% universal tariff on all countries on the 9th of this month. For key trading partners such as South Korea (25%), Taiwan (32%), and China (34%), a reciprocal tariff with a higher rate than the universal tariff was applied. The reciprocal tariffs were temporarily suspended for 90 days, but the 10% universal tariff remains in place, increasing the burden of tariffs on export corporations.
Instability in the real estate market is also pointed out as one of the backgrounds for the freezing of interest rates. The land transaction permit system, applied to the three districts in Gangnam (Seocho, Gangnam, and Songpa), was lifted in February and was designated again just a month later, leading to rising real estate prices. Apartment prices in Seoul have been climbing for 10 consecutive weeks starting from the first week of February, when the possibility of lifting the permit system was discussed. The total housing transaction volume in Seoul in February increased by 37.9% compared to the previous month, reaching 7,230 transactions.
The rise in housing prices has fueled an increase in household loans. According to the 'March Household Loan Trends' released by the Financial Services Commission on the 9th, household loans in the financial sector increased by 400 billion won compared to the end of February. During this period, housing mortgage loans increased by 3.4 trillion won, leading the overall increase in household loans. The Financial Services Commission anticipated that real estate transactions that occurred after the lifting of the permit system and before its reassignment could be reflected in household loans with a time lag, potentially leading to an increase in the scale of loans in the future.
Shin Eol, a researcher at Sangsangin Investment & Securities, noted that 'the won has depreciated by more than 2% since President Trump's inauguration, and despite the resolution of the impeachment political situation, the volatility of the exchange rate continues.' He added, 'Even if the need for interest rate cuts due to economic slowdown is recognized, uncertainty in domestic and international affairs will act as a factor of concern for many Monetary Policy Committee members.'
Baek Yoon-min, a researcher at Kyobo Securities, stated, 'Concerns about high exchange rate volatility and the possibility of a renewed expansion of household debt remain burdensome, and the impact of U.S. reciprocal tariffs is also uncertain.' He further indicated, 'It is still necessary to confirm the potential additional negotiations and their effects on the real economy.'
◇ Likely resumption of interest rate cuts in May… Predicted year-end interest rate level is 2.25%
The majority of experts expect the Bank of Korea to resume interest rate cuts in May. This is largely due to the high likelihood of a decline in this year's economic growth rate for South Korea as a result of the impact of reciprocal tariffs from the United States.
Earlier, the Bank of Korea presented a forecast for this year's growth rate of South Korea's gross domestic product (GDP) at 1.5% in its monetary credit policy report released in March, indicating that after the U.S. raised tariffs on key trade deficit countries, including China, and maintained them until 2026, if other countries respond with high retaliatory tariffs against the U.S., the growth rate could decline further. The assessment of the U.S. reciprocal tariffs has become more stringent than the previously pessimistic scenario, increasing concerns over a slowdown in growth.
The supplementary budget plan, which is expected to be announced soon, is highly likely to pass through the National Assembly between April and May, leading to expectations that interest rates will be lowered in coordination with policy measures. Choi Sang-mok, the Deputy Prime Minister and Minister of Economy and Finance, held a meeting with economic ministers at the Government Complex Seoul on the morning of the 8th and stated, 'We cannot delay response to the crisis any longer,' adding that 'the government will announce a supplementary budget of 10 trillion won early next week.'
Kang Seung-won, head of the bond strategy team at NH Investment & Securities, stated, 'Even if the Monetary Policy Committee freezes the rate at this meeting, about two members may leave the door open for the possibility of a rate cut within three months in the conditional forward guidance, providing a signal for a rate cut.' He predicts that 'the rate cut will be resumed in May, coinciding with the timing of the supplementary budget.'
However, there are opinions predicting a rate cut in July. Jo Yong-gu, a researcher at Shinyoung Securities, remarked, 'The exchange rate remains at a level higher than expected, and there are additional upside risks due to the depreciation of the yuan.' He added, 'Considering the rising trend of house prices in Seoul and the increasing household debt, I expect a rate cut in July.'
Regarding the year-end benchmark interest rate level, eight out of ten predict 2.25%, one predicts 2.5%, and one predicts 2.0%. Ahn Jae-kyun, a researcher at Shinhan Investment & Securities, who predicted 2.25%, stated, 'I initially expected the year-end rate to be 2.50% but lowered the forecast to 2.25%. The new government that will be established after the presidential election is likely to show an expansionary fiscal policy, and the Bank of Korea seems to be seeking to enhance the effect of economic stimulus through rate cuts.'
The economist at Daishin Securities who predicted 2.5% explained, 'The benchmark interest rate is expected to be cut twice this year, including in February.' He noted, 'In the event of an additional cut, we considered the exposure to risks such as exchange rate volatility.' Lee Jeong-hoon, a researcher at Eugene Investment & Securities, stating 2.25%, remarked, 'With the implementation of U.S. reciprocal tariffs, the risk of economic downturn has increased, and I expect the economic outlook in May to further downward revise growth rates for this year and next year.'