Interest Rate Cut Expectations Grow in Korea Amid US ‘Big Cut’

As the US implements the ‘big cut’, expectations for an interest rate cut are also growing in Korea. The government and the ruling party are of the position that interest rates should be lowered quickly to revive the sluggish domestic economy.

The government expressed its expectations, with the US Federal Reserve’s shift in monetary policy seen as a sign of recovery from the crisis. According to Deputy Prime Minister and Minister of Economy and Finance, Choi Sang-mok, “It is an emerging global complex crisis triggered by the over-liquidity caused by the pandemic response and supply chain shocks such as the Russia-Ukraine war.”

However, he emphasized that he would prepare for situations like the stock market crash in early August and respond boldly to an overheated housing market or an increase in household debt. The ruling party has maintained its position that the Bank of Korea should lower interest rates as soon as possible, taking into account the sluggish consumption caused by the burden of interest.

The key is timing. The earliest the Bank of Korea’s Monetary Policy Committee meeting, which will decide interest rates, will be held is the 11th of next month. According to Cho Young-moo, a researcher at LG Economic Research Institute, “Given that the US rate cut was large and that strong policies are likely to lower the growth rate of household debt, the possibility of a rate cut by the Bank of Korea in October appears to be gradually increasing.”

The Bank of Korea assessed that “the room to operate monetary policy while taking into account domestic economic conditions, prices, etc. has increased.” However, this may be based on the premise of ‘domestic factors’ such as real estate prices and household debt. According to Huh Joon-young, a professor of economics at Sogang University, “(The loan regulation) will likely have visible results for a month or two, and the Bank of Korea may be able to lower interest rates after confirming that household loan growth has slowed down a bit. A November rate cut seems a more reasonable scenario than an October rate cut.”

Ultimately, it appears that the household loan index until early next month will be the ‘barometer’ for interest rate cuts. In relation to this, the government stated that the increase is expected to slow down as the effects of household loan regulations become visible this month.

This is Kim Geon-hui of MBC News.

Video coverage: Jeong In-hak / Video editing: Min Kyung-tae