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Bank of Korea to pause easing in July amid household debt surge: Reuters poll
Bank of Korea to pause easing in July amid household debt surge: Reuters poll

Reuters

time08-07-2025

  • Business
  • Reuters

Bank of Korea to pause easing in July amid household debt surge: Reuters poll

BENGALURU, July 8 (Reuters) - The Bank of Korea will pause its easing cycle on Thursday but is expected to resume interest rate cuts next month to support economic growth in a country burdened by high household debt, a Reuters poll of economists suggested. 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)

Bank of Korea to pause easing in July amid household debt surge: Reuters poll
Bank of Korea to pause easing in July amid household debt surge: Reuters poll

CNA

time08-07-2025

  • Business
  • CNA

Bank of Korea to pause easing in July amid household debt surge: Reuters poll

BENGALURU :The Bank of Korea will pause its easing cycle on Thursday but is expected to resume interest rate cuts next month to support economic growth in a country burdened by high household debt, a Reuters poll of economists suggested. Government data showed 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 at 2.50 per cent 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 per cent in the first three months of the year and inflation largely stable at around 2 per cent, a significant majority of economists - 22 of 31 - expect the BOK to lower the policy rate by 25 basis points to 2.25 per cent 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 per cent, while 13 said rates would fall to 2.00 per cent by end-2025. Two expected it to remain unchanged at 2.50 per cent. "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 per cent." 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 per cent from 1.3 per cent expected in April, aligning with the central bank's projection of 0.8 per cent. Inflation was expected to average 2.0 per cent this year and ease slightly to 1.9 per cent 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 per cent by end of this year."

Bank of Korea board member expresses financial stability concerns
Bank of Korea board member expresses financial stability concerns

CNA

time25-06-2025

  • Business
  • CNA

Bank of Korea board member expresses financial stability concerns

SEOUL :A board member of South Korea's central bank on Wednesday expressed concern about financial stability risk stemming from rising household debt. "There is a need to be cautious about the possibility of housing market and household debt-related risks increasing again," said Kim Jong-hwa, a member of the Bank of Korea's seven-seat monetary policy board. Kim emphasised that the central bank should coordinate policy with the government to prevent any increase in financial instability amid its monetary easing cycle. Last month, the BOK lowered interest rates for a fourth time in the current easing cycle and said it was necessary to continue to ease monetary policy to support economic growth, but with caution over associated risks. The country's household borrowing from banks increased in May by the biggest amount since September 2024, as house prices in capital Seoul rose sharply, raising concerns about an overheated property market. The impact of interest rate cuts on house prices and household debt tends to be bigger as interest rates are lowered more, the BOK said in a semiannual financial stability report. On stablecoins, the BOK said there were potential risks to financial stability and the broader economy, so it will cooperate with the government to ensure that its new regulations are designed in a way that minimises the risks.

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