Analysts predict that South Korea’s central bank will lower its policy rate in November rather than October because it wants to be sure that the rise in household debt will slow down in conjunction with decreasing inflation.

There are only two more rounds of the Bank of Korea’s (BOK) monetary policy meetings this year, in October and November.

For the thirteenth consecutive month, the BOK maintained interest rates at 3.5 percent, the highest level in around sixteen years. From April 2022 to January 2023, the central bank raised interest rates seven times in a row, according to the Yonhap news agency.

Rising household indebtedness has surfaced as a hindrance to the BOK’s policy shift, despite the fact that inflation has recently considerably reduced, giving it the opportunity to lower the rate.

Analyst Hwang Seung-taek of Hana Securities said, “It is not easy for the BOK to cut the rate this year given rising home prices and household debts.” The bank will cut the rate at its meeting in November, at the latest.

According to the central bank, family debt levels are projected to remain high and home prices in the greater Seoul area have continued to climb.

According to statistics from the central bank, bank lending to households in South Korea increased in August for the fifth consecutive month, with a record rise in mortgages driving the increase.

After a 5.5 trillion-won rise in July, banks’ household loans increased by 9.3 trillion won (US$6.9 billion) in August, the largest month-over-month increase in 37 months.

The amount of home-backed loans held by banks increased by 8.2 trillion won in August compared to the same month last year, which was the largest monthly rise in the history of the nation.

Additionally, the central bank signaled this week that rate reduction would not occur in the face of excessive household debt by stating that the timing and speed of any rate cuts would rely on financial stability.

In addition, Cho Young-moo, a researcher at the LG Economic Research Institute, said that the central bank is probably going to intervene in November after confirmation of a downturn in household debt and housing prices.

“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.