South Korea’s central bank yesterday slashed its economic growth forecast for this year and kept its benchmark interest rate unchanged at a record low amid growing concerns of deflation.
Bank of Korea (BOK) Governor Lee Ju-yeol put the new estimate for Asia’s fourth-largest economy at 3.4 percent growth this year, compared to an earlier forecast of 3.9 percent.
The bank decision to leave its key rate unchanged at 2 percent was widely expected, although some analysts had predicted a cut of 25 basis points to boost tepid domestic consumption and ease deflation concerns stemming from low oil prices.
South Korea imports almost all of its energy needs from overseas, and a recent plunge in oil prices saw inflation hit 0.8 percent last month, the lowest rate in 15 years and far below the BOK’s target range of 2.5 to 3.5 percent.
Lee said yesterday that the bank had cut this year’s inflation forecast to 1.9 percent from 2.4 percent previously.
“Every economic sector, including consumption and investment, is failing to show a satisfying recovery, especially consumption,” Lee told reporters.
“We should create a cycle in which investment leads to new jobs and increased incomes,” he said.
As well as sluggish domestic consumption, Lee warned of the “very significant” danger posed by expanding household debt, which has outstripped income growth in recent years.
The central bank also cited continued uncertainty resulting from slowing growth in the eurozone and China.
Exports, which account for about half of the country’s economy, grew 1.2 percent year-on-year in the fourth quarter of last year, slowing from 3.6 percent in the third quarter and 3.2 percent in the second quarter.
In an annual new year press conference earlier this week, South Korean President Park Geun-hye stressed revitalizing the economy was her top priority for this year.
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