Bank of Korea to pause easing in July amid household debt surge: Reuters poll
Government data showed, opens new tab home-backed mortgage loans rose by 5.6 trillion won ($4.1 billion) in May, accelerating from a 4.8 trillion won increase in April. That uptick is likely to deter the central bank from delivering back-to-back rate cuts even as it remains on an overall easing path.
"There is a need to be cautious about the possibility of housing market and household debt-related risks increasing again," central bank board monetary policy board member Kim Jong-hwa said on June 25.
All 33 economists polled July 1–7 expected the BOK to hold its base rate (KROCRT=ECI), opens new tab at 2.50% on July 10.
"A pause in July is not really a special thing. Financial stability and housing market concerns were always under consideration when the BOK was conducting monetary policy," Stephen Lee, chief economist at Meritz Securities, said.
"The only thing ... that seems a little bit different this time is that home prices in Seoul have recently surged and that has caused mortgage loans to rise," he added.
Even after 100 basis points of cuts since late last year, the minutes of the May meeting showed board members saying it was necessary to continue easing monetary policy to support economic growth.
With the economy contracting 0.2% in the first three months of the year and inflation largely stable at around 2%, a significant majority of economists - 22 of 31 - expect the BOK to lower the policy rate by 25 basis points to 2.25% by the end of this quarter.
However, views diverged on where rates will end the year. Just over half of economists, or 16 of 31, saw the policy rate at 2.25%, while 13 said rates would fall to 2.00% by end-2025. Two expected it to remain unchanged at 2.50%.
"The combination of lackluster growth and contained price pressure will encourage further policy support," Jennifer Kusuma, senior rate strategist at ANZ, said.
"We expect the BOK's policy messaging to keep the door open for further easing and continue to see scope for a further 25 bps rate cut this year, taking the policy rate to 2.25%."
A slowing economy and the lack of progress on a trade deal with the United States are likely to weigh on the outlook.
The poll showed economists reduced their 2025 growth forecast to 0.9% from 1.3% expected in April, aligning with the central bank's projection of 0.8%. Inflation was expected to average 2.0% this year and ease slightly to 1.9% in 2026.
"The prolonged uncertainty will surely dampen the already weak domestic demand growth, companies will likely adopt wait-and-see mode before finalising their investment plans," Kelvin Lam, senior economist at Pantheon Macroeconomics, said.
"If trade talks with the U.S. turn sour, then there will be a higher chance of rates going to 2.00% by end of this year."
(Other stories from the July Reuters global economic poll)
($1 = 1,367.7 won)
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