[Monetary Policy Committee Interview]BNP Paribas Expects November Rate Cut Followed by Extended Hold as Financial Stability Takes Priority

(Seoul=Yonhap Infomax) Si Yoon Yoon – BNP Paribas expects the Bank of Korea to cut its base rate by 25 basis points at the Monetary Policy Board meeting in November, but to maintain a hold stance for an extended period thereafter.

The bank cited concerns over an overheating real estate market, recently highlighted by Bank of Korea Governor Rhee Chang-yong, as a key factor limiting the scope for early monetary easing.

“Since the macroprudential measures announced in October, the pace of housing price increases has gradually slowed,” said Jiho Yoon, economist at BNP Paribas, in an interview with Yonhap Infomax on the 25th. “While some areas in Seoul are seeing renewed price gains, the overall market has entered a more stable phase compared to the October policy meeting, especially considering the decline in transaction volumes.”

Yoon emphasized that the cooling of the real estate market is a significant variable for the Bank of Korea’s policy direction. “We remain cautious about the Bank of Korea’s rate cut cycle this year due to financial stability risks,” he said, projecting a terminal rate of around 2.25%.

He also noted that the slowdown in real estate transactions is expected to moderate the pace of household debt growth. “Rising financial stability risks will act as a constraint on an aggressive rate cut cycle by the Bank of Korea,” Yoon added.

BNP Paribas forecasts that the Bank of Korea will revise up its GDP growth outlook for 2025 and 2026 to 1.0% and 1.8%, respectively, from previous estimates of 0.9% and 1.6%. The inflation outlook is also expected to be raised to 2.1% and 2.0% for 2025 and 2026, from 2.0% and 1.9% previously.

“Overall, we expect growth momentum to improve,” Yoon said, while noting persistent upside and downside risks such as the sustainability of the semiconductor boom and potential export slowdowns due to tariffs.

Inflation is projected to fluctuate near the 2% target. “Although there is upward pressure on prices from a weaker won, stable global oil prices and still-moderate wage growth should keep inflation close to target,” Yoon explained.

On the dollar-won exchange rate, Yoon said, “If the Federal Reserve delivers fewer rate cuts than markets expect, the interest rate differential could put upward pressure on the dollar-won rate. However, if the Fed adopts a more hawkish stance, demand for overseas assets among Korean investors may decline, potentially easing upward pressure on the exchange rate.”

BNP Paribas expects the Federal Reserve to cut rates in December this year and again in March and June next year, with the terminal Fed funds rate seen at 3.00–3.25%.

For South Korea, BNP Paribas projects GDP growth of 1.0% this year and 2.0% next year, with consumer price inflation at 2.1% and 2.0%, respectively.

syyoon@yna.co.kr

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