Bank of Korea likely to cut key rate in November

Seoul, Sep 14
South Korea's central bank is likely to cut its policy rate in November, rather than in October, as it wants to be confident of a slowdown in household debt increase amid moderating inflation, analysts have said.

The Bank of Korea (BOK) has only two rounds of its monetary decision meetings left this year in October and November.

Last month, the BOK kept interest rates unchanged at 3.5 percent, the highest level in about 16 years, for the 13th straight time. The central bank delivered seven consecutive rate hikes from April 2022 to January 2023, reports Yonhap news agency.

Recently, inflation has markedly moderated, leaving room for the BOK to reduce the rate, but rising household debts have emerged as a drag on its policy pivot.

"Given rising home prices and household debts, it is not easy for the BOK to cut the rate this year," said Hwang Seung-taek, an analyst at Hana Securities. At the earliest, the bank will slash the rate at its November meeting.

The central bank said housing prices in the greater Seoul region have continued to rise and household debts are highly likely to maintain high levels.

Household loans extended by banks in South Korea rose for a fifth straight month in August, led by a record increase in mortgages, according to central bank data.

Banks' household loans rose by 9.3 trillion won (US$6.9 billion) in August from a month earlier, marking a sharp acceleration from a 5.5 trillion-won gain in July and the highest on-month increase in 37 months.

Banks' home-backed loans added 8.2 trillion won from a month earlier to 890.6 trillion won in August, marking the highest on-month increase in the country's history.

The central bank also said this week that the timing and the pace of any rate cuts will depend on financial stability, signalling that any rate cuts would not come in the face of high household debts.

Cho Young-moo, a researcher at LG Economic Research Institute, also said the central bank is likely to take action in November after confirming a slowdown in home prices and household debts.

"The central bank and the government are forecasting the economy will improve during the second half of the year, which will raise the chance of any rate cut in November," he said.