South Korea’s central bank cut its economic growth and inflation forecasts, and left its key interest rate unchanged as the nation’s export-dependent economy faces rising risks.
Band of Korea (BOK) Governor Lee Ju-yeol said that GDP was now expected to grow 2.5 percent and inflation to register 1.1 percent this year.
Those marked downgrades from forecasts in January of 2.6 percent and 1.4 percent respectively.
Photo: EPA-EFE
Lee said BOK policy would remain accommodative, but he cited record household debt in reiterating that it was not yet time to consider a rate cut.
He said concerns over a recession were “excessive,” noting that the economy was still expected to grow roughly in line with its potential rate.
Lee blamed weakening exports, particularly of semiconductors, and slowing business investment for the growth downgrade, but said exports and capital spending were likely to improve in the second half of the year.
With risks still growing, most economists see no change in the benchmark rate this year, although the bond market has flirted with the possibility.
“While Q1 growth is likely to be weak, there are some early signs that suggest Korea’s growth may be close to bottoming and we concur with the BOK’s view on exports gradually recovering in H2,” said Krystal Tan (譚恩), an economist at Australia & New Zealand Banking Group in Singapore.
She added that ANZ is maintaining its forecast of no change this year, saying Lee did not seem concerned about low inflation.
The BOK kept its seven-day repurchase rate at 1.75 percent, as expected by all but one of 22 economists surveyed by Bloomberg.
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