• The Bank of Korea (BOK) is expected to cut its policy rate in November due to rising household debt and moderating inflation.
• The BOK has maintained the interest rates at 3.5 percent, the highest in 16 years, for the 13th consecutive time.
• Analyst Hwang Seung-taek speculates that the earliest the bank would slash the rate would be at its November meeting.
• The decision to cut the policy rate will depend on various factors, including the trend in home prices, household debt, and the overall economic outlook.

The Bank of Korea (BOK), South Korea's central bank, is expected to cut its policy rate in November. This decision is anticipated to be made in light of the need for assurance of a slowdown in the increase of household debt, coupled with moderating inflation. 

The BOK has two rounds of its monetary decision meetings remaining this year, scheduled for October and November. However, the bank is likely to hold off on making any changes to the policy rate in October, choosing instead to wait until November. This decision is not made lightly, as the bank is keenly aware of the economic implications of such a move.

In the previous month, the BOK maintained the interest rates at 3.5 percent, a level that has remained unchanged for the 13th consecutive time. This rate is the highest it has been in approximately 16 years. The central bank had previously implemented seven consecutive rate hikes from April 2022 to January 2023, according to reports from Yonhap news agency.

Inflation and Household Debts: Key Factors in Decision Making

Inflation, a key factor in the decision-making process of the central bank, has recently shown signs of moderation. This change has opened up the possibility for the BOK to reduce the rate. However, the rising household debts have emerged as a significant concern, potentially hindering the bank's policy pivot.

Hwang Seung-taek, an analyst at Hana Securities, commented on the situation, stating, Given rising home prices and household debts, it is not easy for the BOK to cut the rate this year. He further speculated that the earliest the bank would slash the rate would be at its November meeting.

The central bank has noted that housing prices in the greater Seoul region have continued to rise, and household debts are highly likely to maintain high levels. This trend is supported by data showing that household loans extended by banks in South Korea rose for a fifth straight month in August. This increase was led by a record increase in mortgages, according to central bank data.

Record Increase in Mortgages and Home-Backed Loans

In August, banks' household loans rose by 9.3 trillion won (US$6.9 billion) from a month earlier. This increase marked a sharp acceleration from a 5.5 trillion-won gain in July and was 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 has also indicated that the timing and the pace of any rate cuts will depend on financial stability. This statement signals 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 shared his views on the matter. He suggested that the central bank is likely to take action in November after confirming a slowdown in home prices and household debts. He added, "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."