Tuesday, December 10, 2019

S. Korea cuts growth outlook to 2.2%, key rate to 1.5% amid 

Jul 18. 2019
Bank of Korea Gov. Lee Ju-yeol -Photo by: The  Korea Herald
Bank of Korea Gov. Lee Ju-yeol -Photo by: The Korea Herald
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By The Korea Herald 
Asia News Network

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The Bank of Korea has slashed its forecast for this year’s economic growth to 2.2 percent and the nation’s base interest rate to 1.5 percent, citing the slow economic recovery and ongoing trade tension with Japan.

 

 

“Considering the changes in economic conditions since the last outlook (announcement) in April, we have set the economic growth rate for this year at 2.2 percent and the consumer price inflation at 0.7 percent,” said BOK Gov. Lee Ju-yeol at a press briefing after the bank’s rate-setting Monetary Policy Board meeting.

The economic growth forecast was down 0.3 percentage point from the previous 2.5 percent and lower than the widely speculated 2.4 percent.

Exports and investments were below expectations during the first half of the year and are likely to remain sluggish for a while, according to Lee.

With the latest move, the BOK’s growth forecast neared those of key global credit rating agencies, such as Moody’s and Fitch, which had respectively suggested growth of 2.1 percent and 2 percent for Asia’s fourth-largest economy this year.

Earlier this month, the Ministry of Economy and Finance lowered the government’s forecast to the 2.4-2.5 percent range, down from the previous 2.6-2.7 percent range. 

Despite mounting concerns from the market, BOK chief Lee had for some time refrained from immediate adjustments, citing the country’s strong fundamentals -- until bringing up the need for “necessary measures” last month.

The decisive factor was the recently elevated trade tension, triggered by the Japanese government’s move to restrict exports of key hi-tech materials to Korea, Lee admitted.

“(The impact of) Japan’s export restrictions were reflected to a certain extent in the economic assessments,” Lee said, admitting the correlation between the ongoing Seoul-Tokyo trade friction and the BOK’s change of stance.

“Given the trade volume between the two countries and the connectivity between their industries and companies, the export curbs have considerable effect upon our economy.”

Korea Customs Service data showed that exports totaled $13.56 billion as of July 10, down 2.6 percent from the same period last year. The daily average, considering the actual days of operation, was $1.6 billion, down 14 percent from a year prior.

The bank’s policy board also decided to cut the base interest rate by 25 basis points to 1.5 percent, making the first cut in more than three years.

The rate cut was largely seen as preemptive, as it came earlier than the US Federal Reserve’s anticipated rate cut slated for later this month.

There had been speculations that Seoul’s monetary policymakers would stick to a wait-and-see approach for the time being and make a move after the Fed’s announcement, though some minority opinions had upheld an immediate rate cut. 

According to a survey of 200 market experts here, conducted earlier this month by the Korea Financial Investment Association, 70 percent of the respondents predicted a rate freeze this month.

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