SEOUL: South Korea’s central bank on Thursday slashed its 2015 economic growth forecast for the second time this year and predicted annual inflation would drop below the 1.0 percent mark.
The monthly monetary meeting of the Bank of Korea (BOK) also left its benchmark interest rate unchanged for April, following a surprise 25 basis point reduction the previous month.
The growth forecast had already been lowered in January from 3.9 percent to 3.4 percent, but the bank said Thursday it was now estimating growth for the year at 3.1 percent.
It also said annual inflation was likely to come in at just 0.9 percent, compared to the bank’s earlier forecast of 1.9 percent.
“Economic recovery has been slower than expected,” BOK governor Lee Ju-Yeol told reporters.
Lee said exports remained sluggish while consumption had largely failed to respond to the low interest rate and other steps to boost growth.
The South Korean economy has shown little signs of improvement since the BOK began reducing its benchmark rate last year.
The cut in March left the rate at a record low of 1.75 percent, deepening fears of deflation that could hammer an overgrown property market.
Consumer prices rose 0.4 percent in March from a year earlier—the slowest pace for 16 years—while the exports that drive Asia’s fourth-largest economy have fallen in every month this year.
Economic growth in the fourth quarter of last year was the slowest since 2009.
“Prospects for our exports are not bright,” Lee said, citing “downward risks” such as China’s slow economic growth and the Korean won, which has been strengthening against other currencies.
But he predicted the economy would show a “gradual” recovery in the second half with low oil prices and low interest rates stimulating consumption.
“Affected by our rate cuts, consumption and investment are expected to rebound,” he said.
The decision to leave the benchmark interest rate unchanged in April had been widely expected, although Lee said one board member had voted for a further cut.
Low interest rates are very much the trend across the Asia-Pacific region.
In recent months China and India have both made two reductions, while Australia, Indonesia, Singapore and Thailand have also been forced to ease monetary policy. AFP