Forecasts from bond market experts are mixed ahead of the Bank of Korea's interest rate decision. Compared to the consistent opinions that have been expressed since February this year, the atmosphere has changed. Experts who evaluated that the surging real estate prices and rising household debt should be monitored further predict a 'freeze', while experts who anticipate that the Bank of Korea will focus on enhancing the growth-boosting effects of the supplementary budget expect a 'cut'.
Regarding the upcoming 'revised economic outlook', many opinions suggest a slight upward adjustment in this year's growth rate. A majority of experts expect that the growth rate forecast will rise from the previous 0.8% to over 0.9%. Most also view that the inflation rate will slightly increase to about 2.0% compared to the previous forecast.
◇ Is it 'watching the real estate market' or 'maximizing supplementary budget effects'… Year-end interest rate forecast is '2.25%' prevalent
According to a survey conducted by ChosunBiz of 11 macroeconomic and bond experts from domestic securities firms, 54.5% (6 out of 11 respondents) predict that the Bank of Korea's Monetary Policy Committee meeting on the 28th will result in the base rate being frozen at 2.50% annually. The remaining 45.5% (5 respondents) expect the base rate to be cut to 2.25% annually.
Earlier, the Bank of Korea lowered the interest rate by 0.25 percentage points each in October and November last year, then alternated between freezing (January, April, July) and cutting (February, May) rates this year. In particular, the decision to freeze rates in July was made considering the overheating housing market and the increase in household loans. Despite the government's high-intensity regulations, such as lowering the housing loan limit to 600 million won since June 28, it was anticipated that the regulatory effects would not be seen immediately.
Experts weighing the freeze outlook for August believe that the effects of loan regulations need to become more visible before the Bank of Korea will cut rates. Kwon Dong-rak, a researcher at DAISHIN SECURITIES, said, "Given that the currency authority directly emphasized the factors of 'soaring apartment prices in the Seoul area' and 'increased household debt' as reasons for the July rate freeze, it is necessary to confirm these factors further, which is why I expect a freeze in rates this time."
Shin Yong-gu, a researcher at Shinyoung Securities, noted, "Overall, the urgency of economic response has diminished, and the aspect of financial stability must still be considered seriously," adding that "there were no proposals for urgent rate cuts in the July minutes."
In fact, Bank of Korea Governor I Chang-yong attended the National Assembly's Strategy and Finance Committee meeting on the 19th and stated, "While the real estate market in the metropolitan area and the increase in household debt appear to be somewhat stabilizing after the real estate measures, the trend of high housing price increases continues in certain areas of Seoul," and noted, "It is necessary to observe a bit longer to determine whether trend stability is achieved."
According to the Korea Real Estate Board (REB), as of the 4th, the sales price of apartments in Seoul rose by 0.14% in the first week of August, increasing by 0.02 percentage points compared to the previous week (0.12%). After the real estate measures were announced in June, the rate of increase had slowed for five consecutive weeks, but it expanded slightly for the first time in six weeks. In the second week of August, the rate of increase fell again to 0.10%, marking the lowest increase in three months.
On the other hand, experts predicting a rate cut in August argue that lowering rates in alignment with the supplementary budget execution could maximize the effect of monetary policy.
Moon Hong-cheol, a researcher at DB Financial Investment, said, "Considering the deterioration of the domestic economy, the linkage with fiscal policy, and uncertainties regarding export tariffs, I expect a rate cut." Kyobo Securities researcher Baek Yoon-min acknowledged that "it is true that expectations for a rate cut in August have somewhat retreated after the Governor's remarks," but added, "However, considering the fundamentals of the Korean economy, the need for further monetary policy easing has not significantly changed."
Regarding the year-end interest rate level, 8 out of 11 experts expect it to be 2.25%. Aside from the six who anticipate a freeze in August, two who expect a cut also believe that the Bank of Korea will only lower the rate by 0.25 percentage points for the remainder of the year. Among those predicting a freeze, most foresee a rate cut in October, while those predicting a cut expect the next cut to occur in the first quarter of next year.
◇ This year's growth rate is expected to exceed 0.9%… slight upward adjustment in inflation also anticipated
The Monetary Policy Committee will also disclose revised projections for this year's gross domestic product (GDP) growth rate and consumer price index. The Bank of Korea had projected a 0.8% annual growth rate and a 1.9% inflation rate in the 'revised economic outlook' released in May. Following the preparation of a second supplementary budget, the possibility of an upward adjustment in the growth rate is being raised.
The governor stated, "Although the growth rate was sluggish until the beginning of this year, it rebounded in the second quarter due to improvements in economic sentiment," adding, "In the second half, it is expected that growth will continue to recover, mainly driven by domestic demand due to supplementary budget execution."
Among the 11 experts surveyed, 9 predicted that the Bank of Korea would raise the growth rate forecast to over 0.9%. The number of experts predicting that the growth rate will reach 1% amounted to six. They attribute this to the consumption-boosting effects of the supplementary budget, coupled with the partial alleviation of export uncertainties following the conclusion of the Korea-U.S. tariff negotiations at the end of last month.
Shin Eul, a researcher at Sangsangin Investment & Securities, who presented the highest growth rate forecast of 1.1%, commented, "It is necessary to reflect the fact that the base rate has been lowered by 1 percentage point over the past year and that approximately 45 trillion won has been allocated for the supplementary budget," adding, "I believe that the alleviation of export uncertainties has created an environment to mitigate downward risks to additional growth rates."
Regarding inflation forecasts, there were more experts predicting an increase. Among the 10 who responded to the inflation question, 6 expected this year's inflation rate to rise above 2.0%, while 4 believed it would maintain the previous forecast of 1.9%.
Analyst Ahn Jae-kyun from Korea Investment & Securities said, "As the Korean won appreciated in May and June and then turned to depreciation in July and August, there is a concern that import prices may rise again in September and October."