Meritz Securities forecasts the Bank of Korea will make its next interest rate adjustment in October, stating the current rate hike cycle operates in a different environment compared to past consecutive rate increase periods. Analyst Lee Seung-hoon noted in a report on the 21st that while the semiconductor-driven export boom is spreading to domestic demand and the economy is performing well, the situation differs from environments requiring urgent consecutive rate hikes for price stability, financial stability, and liquidity expansion control. Past consecutive rate hike cases occurred during economic booms with liquidity expansion (2007 July-August), rapid housing price surges requiring swift policy tightening (2021 November-2022 January), and high inflation risks requiring immediate action (2022 April-2023 January).
Bank of Korea's Past Consecutive Rate Hike Periods Operated Under Different Conditions
The Bank of Korea previously implemented consecutive interest rate increases during three periods: July-August 2007, November 2021-January 2022, and April 2022-January 2023. The 2021-2023 periods were essentially part of the same cycle. Lee stated these past consecutive hike cases occurred in environments requiring urgent responses to liquidity expansion during economic booms, situations demanding rapid withdrawal of accommodative conditions due to surging housing prices, and circumstances requiring immediate action to reduce inflation fixation risks. These scenarios necessitated urgent measures for financial stability or price stability.
Current Financial Stability Does Not Warrant Back-to-Back Rate Increases
Lee assessed the current financial stability situation does not constitute an emergency requiring 'back-to-back' rate hikes. While weekly apartment price increases are accelerating in Seoul and the metropolitan area, the situation differs from 2021 when week-on-week increases exceeded 0.5%. Lee noted the previous period involved nationwide increases, whereas current increases center on Seoul. He added that lending regulations currently constrain credit utilization. Regarding credit expansion concerns, Lee stated corporate loans drive the increase, and even accounting for this, commercial bank private loan growth stood at 3.9% as of June. Compared to double-digit nominal GDP growth, private debt ratio upward pressure remains modest. Lee further supported the low likelihood of consecutive rate hikes by citing the high probability of consumer price index (CPI) growth rate following a downward stabilization trajectory this year, and the possibility of low household transmission rates as increased real GDI (gross domestic income) centers on corporate profit expansion.
Bank of Korea to Announce Q2 GDP Preliminary Figures on the 23rd
Lee forecasts Q2 real GDP growth at 0.7% quarter-on-quarter and 3.8% year-on-year. The Bank of Korea will announce Q2 real GDP preliminary figures on the 23rd.
FAQ
Why does Meritz Securities forecast the Bank of Korea's next rate adjustment in October?
Meritz Securities analyst Lee Seung-hoon stated in a report on the 21st that the current rate hike cycle operates in a different environment compared to past consecutive rate increase periods. While the economy is performing well due to semiconductor export booms spreading to domestic demand, the situation does not require urgent consecutive rate hikes for price stability, financial stability, and liquidity expansion control.
How does the current housing market situation differ from the 2021 period?
Lee noted that while weekly apartment price increases are accelerating in Seoul and the metropolitan area, the situation differs from 2021 when week-on-week increases exceeded 0.5%. The previous period involved nationwide increases, whereas current increases center on Seoul, and lending regulations currently constrain credit utilization.
What is Meritz Securities' Q2 GDP growth forecast?
Meritz Securities forecasts Q2 real GDP growth at 0.7% quarter-on-quarter and 3.8% year-on-year. The Bank of Korea will announce Q2 real GDP preliminary figures on the 23rd.
