Bank of Korea's Interest Rate Freeze and Real Estate Market: Possibility of Rate Cuts in October?

According to a recent survey conducted by Seoul Economic Daily

There is a growing expectation that the Bank of Korea (BOK) will maintain its current interest rate. Experts suggest that, given concerns over real estate prices and household debt, any rate cuts might be delayed until October. This article explores the BOK's interest rate policies, their impact on the real estate market, and the anticipated interest rate cuts by the Federal Reserve.

According to a recent survey conducted by Seoul Economic Daily, economists and financial experts predict that the BOK’s Monetary Policy Committee, meeting from August 21 to 22, will likely hold the current interest rate steady. 82.6% of respondents believe that the rate will remain unchanged, while only 17.4% expect a rate cut.

The primary reason for maintaining the current rate is concerns over rising real estate prices. Over 52.6% of respondents cited ‘real estate prices’ as the main reason for keeping the rate steady, and when including household debt, approximately 73% pointed to real estate-related risks. Professor Shin Se-don from Sookmyung Women’s University noted, “The current instability in real estate prices is partly due to the significant decrease in loan rates earlier this year,” and warned that lowering the benchmark rate further would likely stimulate additional demand in the housing market.

Moreover, the recently announced 8·8 real estate supply measures are viewed as having an uncertain impact on stabilizing the real estate market at this time. 42.9% of respondents believe it is too early to assess the effectiveness of these measures, with some considering that they will not significantly influence monetary policy decisions. There were also opinions suggesting the need for tighter lending regulations or other demand-side controls.

The timing of interest rate cuts by the U.S. Federal Reserve is also a key factor. The prevailing view is that the Fed will cut rates in September, which could lead to the BOK adjusting its rates in October. Most analysts predict that if the Fed does lower rates, it will likely be by 0.25 percentage points, reflecting its ongoing commitment to controlling inflation.

Regarding the BOK’s monetary policy, 66% of respondents consider it ‘appropriate,’ though some criticize it for not adequately addressing domestic economic stagnation. Concerns about various economic risks for the second half of the year include domestic economic weakness, escalating Middle Eastern conflicts, and potential U.S. economic slowdowns.

Currently, the Bank of Korea is carefully considering the implications of real estate market conditions and household debt in its monetary policy decisions. While opinions on whether to maintain or cut rates vary, future adjustments will likely be influenced by both domestic economic indicators and U.S. monetary policy. The impact of the BOK’s decisions on the real estate market and domestic economy remains a key point of interest.