BOK cuts growth forecast to 2.5%, freezes base rate

The Bank of Korea on Thursday revised down its economic growth forecast for this year to 2.5 percent, amid economic uncertainties and weakening exports.

The nation’s base rate was frozen at 1.75 percent, as the central bank suggested a rate cut would be inconsistent with the government’s expanded fiscal spending later in the year.

“The slowing trend of the global economy has prolonged, while the volatility of policy rates and exchange rates has expanded in the financial market,” BOK Gov. Lee Ju-yeol said at a press conference.

“External uncertainties, as well as the general trend in economic growth and inflation, should be considered.” 

The BOK’s monetary policy board announced earlier that it had decided in a unanimous vote to freeze Seoul’s policy rate at the current 1.75 percent, extending the status quo for the fifth consecutive month.

The board also stated it would “maintain the easing tone,” triggering speculation that the central bank may be considering a rate cut in the near future.

In a previous statement, the board had merely said it would keep an eye on the situation to decide “whether to further adjust the extent of easing,” taking a passive stance toward a rate change.

“This does not mean that (the BOK) will go as far as considering a rate cut,” Lee said, calling for a wait-and-see approach.

“We expect expanded government spending backed by a supplementary budget, which will alleviate sluggish exports and investments, and consequently boost growth.”

The BOK’s board also revised this year’s growth outlook to 2.5 percent, down 0.1 percentage point from its earlier projection in January. The consumer price forecast was also reduced to 1.1 percent, down 0.3 percentage point.

The latest growth forecast is lower than the 2.6-2.7 percent growth target range set by the Ministry of Economy and Finance and the 2.6 percent projection suggested by the International Monetary Fund.

Asia’s fourth-largest economy expanded 2.7 percent in 2018, down from 3.1 percent in the previous year.

“The adjustment in the yearly growth forecast reflects lower-than-expected exports and investment during the first quarter,” Lee said.

The figure, however, may be subject to change later in the year due to the government’s supplementary budget implementation, he added.

The latest figure does not yet include the impact of the extra budget, the monetary policymaker said.

By Bae Hyun-jung (tellme@heraldcorp.com)