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BOK: Sell-side Views On BoK Outlook, More Cuts Expected In H1 2025

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The US banks weigh in on the BoK outlook after yesterday's surprise 25bps cut. Goldman is forecast 75bps of cuts, JPM is on 2 cuts in the first half of 2025. See below for more details. 

Goldman Sachs: "The back-to-back cut was a surprise given a prior forward guidance of 5 out of 6 members expecting no further easing over the next three months and relative to our and consensus expectations of on-hold (18 out of 22 according to latest Bloomberg polls). This decision was not unanimous, with two dissenting votes for on-hold. The MPC statement stressed rising downside risks to growth and the prospect of further disinflation, with downward revision of growth forecasts by 20bp each for 2024 and 2025, and inflation forecasts by 20bp each for 2024 and 2025. The monetary policy outlook turned more dovish, in our view, including dovish changes in the forward guidance and more focus on downside growth risks. Overall, the November meeting is consistent with our view that the BOK will likely continue to ease to a terminal rate of 2.25%, below consensus and current market pricing. We continue to expect gradual easing of 25bp in each quarter, totaling 75bp cuts by summer. In the event of sharp weakening in global trade amid a broader trade war (not our baseline scenario), the pace of easing could accelerate to a terminal rate possibly lower than 2.25%." 

J.P. Morgan: "That said, based on our forecast regarding the fundamental conditions underpinning monetary policy decisions, there does not appear to be a strong need to rapidly lower the policy rate below the neutral level at present. Even with our growth forecast being 0.2%pt lower than the BoK's, we assess the output gap as broadly neutral, and core inflation is not expected to deviate significantly from the headline target of 2%. While the stabilization of household debt growth provides room for rate cuts, the effective exchange rate's depreciation suggests that financial conditions could also turn accommodative. Considering all these factors, we maintain our outlook for a quarterly rate cut path to neutralize the stance. However, given the BoK’s concerns about the declining trend in potential growth amid the stabilization of inflation, we remain mindful of the medium-term risk that the nominal neutral policy rate (currently estimated in the mid-2% range) may be modestly lower than the previous baseline.

In conclusion, we expect two additional 25bp cuts in 1Q and 2Q25, converging to the neutral level of 2.5% by 2Q25 (vs. 3Q in our previous forecast). Acknowledging the high uncertainty in specific monthly forecasts, we tentatively expect the next cuts in February and May next year. Skipping one meeting between future cut actions would allow time to assess the effects of the recent cut actions." 

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The US banks weigh in on the BoK outlook after yesterday's surprise 25bps cut. Goldman is forecast 75bps of cuts, JPM is on 2 cuts in the first half of 2025. See below for more details. 

Goldman Sachs: "The back-to-back cut was a surprise given a prior forward guidance of 5 out of 6 members expecting no further easing over the next three months and relative to our and consensus expectations of on-hold (18 out of 22 according to latest Bloomberg polls). This decision was not unanimous, with two dissenting votes for on-hold. The MPC statement stressed rising downside risks to growth and the prospect of further disinflation, with downward revision of growth forecasts by 20bp each for 2024 and 2025, and inflation forecasts by 20bp each for 2024 and 2025. The monetary policy outlook turned more dovish, in our view, including dovish changes in the forward guidance and more focus on downside growth risks. Overall, the November meeting is consistent with our view that the BOK will likely continue to ease to a terminal rate of 2.25%, below consensus and current market pricing. We continue to expect gradual easing of 25bp in each quarter, totaling 75bp cuts by summer. In the event of sharp weakening in global trade amid a broader trade war (not our baseline scenario), the pace of easing could accelerate to a terminal rate possibly lower than 2.25%." 

J.P. Morgan: "That said, based on our forecast regarding the fundamental conditions underpinning monetary policy decisions, there does not appear to be a strong need to rapidly lower the policy rate below the neutral level at present. Even with our growth forecast being 0.2%pt lower than the BoK's, we assess the output gap as broadly neutral, and core inflation is not expected to deviate significantly from the headline target of 2%. While the stabilization of household debt growth provides room for rate cuts, the effective exchange rate's depreciation suggests that financial conditions could also turn accommodative. Considering all these factors, we maintain our outlook for a quarterly rate cut path to neutralize the stance. However, given the BoK’s concerns about the declining trend in potential growth amid the stabilization of inflation, we remain mindful of the medium-term risk that the nominal neutral policy rate (currently estimated in the mid-2% range) may be modestly lower than the previous baseline.

In conclusion, we expect two additional 25bp cuts in 1Q and 2Q25, converging to the neutral level of 2.5% by 2Q25 (vs. 3Q in our previous forecast). Acknowledging the high uncertainty in specific monthly forecasts, we tentatively expect the next cuts in February and May next year. Skipping one meeting between future cut actions would allow time to assess the effects of the recent cut actions."