The head of South Korea's central bank has painted a dark picture for the Korean economy by noting the local economy may yet again grow at a slower pace than earlier expected amid increased downside risks.
In July, the Bank of Korea slashed its growth estimate for Asia's fourth-largest economy to 2.2 percent from the 2.5 percent forecast three months earlier. The revised outlook marks a sharp fall from the 2.6 percent on-year expansion predicted in January.
The central bank will offer its final growth outlook for the year in November.
"It has been less than a month since the last monetary policy board meeting, held Aug. 30, but it seems there have been many changes at home and abroad even in such a short period of time," Bank of Korea (BOK) Gov. Lee Ju-yeol said while meeting with reporters Friday.
|In this photo provided by Bank of Korea (BOK), BOK Gov. Lee Ju-yeol speaks in a meeting with reporters at BOK Academy in Incheon, 40 kilometers west of Seoul, on Sept. 27, 2019. (Yonhap)|
The top central banker said the scheduled resumption of trade negotiations between the U.S. and China, along with the passage of a bill by Britain to avoid no-deal Brexit, may have created some positive momentum.
"However, it is still difficult to predict which direction the U.S.-China trade dispute and Brexit will move," Lee said.
"It has been two months since (the BOK) offered its latest growth outlook in July, and considering such conditions, I worry that downside risks may have become greater over the past two months," he added.
"We will have to see until then, but I will say it is not easy to meet the 2.2 percent target," the BOK chief said.
His remarks also come about three weeks before the BOK's monetary policy board holds its next rate-setting meeting on Oct. 16.
The board kept the base rate frozen at 1.5 percent in its August meeting, about a month after it slashed the key rate by a quarter percentage point in its first rate cut in three years.
Many market observers believe an additional rate cut is inevitable, considering the country's sluggish exports and low inflation.
South Korea's exports have dropped for nine consecutive months since December and are widely expected to dwindle again this month, with outbound shipments plunging 21.8 percent on-year in the first 20 days of the month.
Consumer prices have also remained weak, growing at a record low of 0.5 percent on-year in the first eight months of the year, far below the annual target of 2 percent.
The BOK chief insisted the low inflation was largely due to a base effect created by a rare and unusual spike in prices of agricultural products last year, which he said will soon disappear.
"We expect such a base effect to disappear at the end of the year at the earliest or early next year, after which (the rise in consumer prices) will reach around 1 percent," he said.
The BOK chief also stressed the need for monetary policy to accommodate the local economy.
"We have said we will operate monetary policy while considering the heightened uncertainties in the path of our growth and prices, and there have not been any changes to such a stance," said Lee.
"We will keep the monetary policy accommodative. How accommodative it will be and when (the policy rate) will be adjusted will be determined after comprehensively considering macroeconomic conditions and financial stability, such as household debt, based on all economic indicators that will become available by the next monetary policy board meeting in October." (Yonhap)
Cho kyung-hee email@example.com
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