All 11 domestic brokerage macro and bond experts in a ChosunBiz survey predicted that the Bank of Korea (BOK) will keep the benchmark rate unchanged at the current 2.5% at the the Bank of Korea's monetary policy committee meeting on the 27th. They see the exchange rate and housing prices as factors making it difficult to cut rates. Earlier this year, the BOK lowered rates twice by 0.25 percentage point (p) each in February and May, then held steady three consecutive times in July, August and October.
◇ "Rate cuts more burdensome amid unstable exchange rate and real estate"
The won-dollar exchange rate has risen 51.2 won (3.47%) so far this month. The closing price on the 21st was 1,475.6 won. Deputy Prime Minister and Minister of the Ministry of Economy and Finance Koo Yun-cheol said on the 14th that he was "concerned about the rising exchange rate and would soon come up with measures to stabilize it," verbally intervening. But the exchange rate fell only that day and then rose for five consecutive trading days.
If the BOK cuts rates, the rate gap with the United States, where the current benchmark is 3.75%–4.00%, will widen. That could accelerate outflows of foreign funds to the U.S. investment market. In that case, demand to convert won into dollars would increase, speeding the won's depreciation, which would add to inflationary pressure.
Kim Seong-su, a researcher at Hanwha Investment & Securities, said, "The annual $20 billion cash investment in the U.S. following the recent tariff negotiation results means the buffer in the foreign exchange market is weakening," adding, "A rate cut in this situation undermines financial stability."
The continued rise in housing prices is also a factor making rate cuts difficult. If the BOK lowers rates, household borrowing burdens would ease and real estate investment demand could rise. According to Real Estate 114, nationwide apartment sale prices in November (as of the 21st) rose 0.31%. Seoul's increase was 0.43%. Although the government unveiled real estate measures on 6·27, 9·7 and 10·15, housing prices are not stabilizing. Household liabilities increased by 2.46 trillion won in the second quarter and a further 1.49 trillion won in the third quarter.
Yun Yeo-sam, a researcher at Meritz Securities, said, "It is necessary to further check whether real estate prices are stabilizing," adding, "The outlook for an economic improvement next year also reduces the need for rate cuts."
◇ Diverging views on the next cut timing… six for a cut vs. five for a hold
Of the 11 experts, six predicted the BOK could cut rates next year. Of those, three saw a cut in the first half and three in the second half. Of those, five expected the BOK to cut once next year and one expected two cuts.
In contrast, five experts predicted the BOK will hold rates next year. Baek Yun-min, a researcher at Kyobo Securities, said, "Room for cuts opens only when financial stability risks ease, but since the BOK's assessment of the economy is relatively optimistic, the timing could be pushed back further." Jo Yong-gu, a researcher at Shinyoung Securities, also said, "The rate-cut cycle has effectively ended."
◇ "Growth rate to rise at least 0.1 percentage point… strong semiconductors and easing tariff uncertainty"
At this the Bank of Korea's monetary policy committee meeting, the Bank of Korea's revised economic outlook will also be released. In August, the BOK put this year's gross domestic product (GDP) growth at 0.9% and next year's at 1.6%.
Many experts saw the BOK raising its growth forecasts for this year and next. Strong semiconductor exports, signs of a domestic demand recovery, and reduced trade environment uncertainty from the South Korea-U.S. tariff talks were cited as reasons.
In August, the BOK projected consumer price index (CPI) inflation at 2.0% for this year and 1.9% for next year. The prevailing view was for an upward revision to 2.1%–2.2% this year and 2.0%–2.2% next year. The won's weakness is feeding into higher import prices, and a smaller fuel tax cut and potential hikes in public utility rates are adding further upward pressure.