the Bank of Korea's monetary policy committee will hold a regular meeting on the 26th to decide the base rate. All 10 domestic securities and bond macro experts told ChosunBiz that the Bank of Korea (BOK) will keep the rate unchanged at the current 2.5% annually throughout this year, including at this Monetary Policy Board meeting.
After the Bank of Korea (BOK) kept the rate unchanged last month, the statement on the direction of currency policy it released no longer included language related to "rate cuts." That contrasts with last November, when it also held the rate but said in the statement that it would "decide whether and when to cut the base rate further while watching future economic conditions."
The Bank of Korea (BOK) cut the rate twice, by 0.25 percentage point each, in February and May last year, then kept it unchanged five straight times in July, August, October, and December of the same year and in January this year.
◇ "Exchange rate, prices, and real estate conditions similar to last month's hold"
Experts judged that economic conditions the Bank of Korea (BOK) considers when deciding rates—such as the exchange rate, prices, and real estate prices—have not changed much from last month, when the BOK held the rate. The won-dollar exchange rate fell to the 1,420-won range at the end of last month before rising to the 1,470-won range early this month. Since then, it has moved in the 1,440-won range, showing high volatility.
In this situation, if the Bank of Korea (BOK) lowers the rate, the rate gap with the United States will widen further. The current U.S. base rate is 3.5% to 3.75% annually. Foreign capital could move from Korea to the United States in search of relatively higher rates. That would weigh on the value of the won.
A weaker won can push up import prices and drive consumer price inflation. Due to the high exchange rate, the consumer price inflation rate was in the 2% range for five straight months from September last year to January this year. In particular, from October (2.4%) to December (2.3%) last year, it exceeded the Bank of Korea (BOK)'s 2% inflation target.
Home prices are also not losing momentum. According to the Korea Real Estate Board (REB), Seoul apartment sale prices last month rose 1.07% from the previous month. That is the biggest gain since October last year (1.43%), when transactions surged ahead of the Oct. 15 real estate measures taking effect. In such conditions, a rate cut could lower the lending rate and intensify a flow of funds into real estate.
◇ All experts say "hold through year-end"… Some see "rate hikes next year"
All experts expected the Bank of Korea (BOK) to maintain a hold stance at least through the end of this year. Six said "rate cuts are over." Of the remaining four, two said rates would stay at the current level through the first half of next year, and two said through the end of next year.
Cho Yong-gu of Shinyoung Securities said, "With exports buoyed by the semiconductor supercycle and solid consumption, the economy is on a recovery track, weakening the need for rate cuts," adding, "Meanwhile, the overheated real estate market and a weak won are persisting, so the hold phase will likely continue for quite some time."
Some experts projected that the Bank of Korea (BOK) could raise rates next year. Park Sang-hyun, senior fellow at iM Securities, said, "The BOK will raise rates in the first quarter of next year," noting, "Korea's economic recovery is strengthening, and the United States could also follow a similar path, lowering rates two to three more times this year and then ending its easing cycle."
The Bank of Korea (BOK) will also release growth forecasts for this year and next at this Monetary Policy Board meeting. Most experts expected the BOK to raise this year's growth forecast from the previous 1.8% at this meeting. Analyses suggested an increase of as little as 0.1 percentage point to as much as 0.3 percentage point. That is because semiconductor exports are increasing more than expected.