BOK freezes base rate, inches down growth forecast

By Bae Hyunjung

Central bank maintains wait-and-see approach amid uncertainties

  • Published : Jan 24, 2019 - 16:24
  • Updated : Jan 24, 2019 - 16:24

South Korea’s central bank on Thursday nudged down its forecast for the country’s economic growth this year, while keeping the policy rate steady amid lingering uncertainties in the domestic and global financial markets.

The Bank of Korea, in its first Monetary Policy Board meeting of the year, decided unanimously to keep the base rate at 1.75 percent, prolonging the status quo since November, when it raised the rate by a quarter percentage point.

The economic growth for this year was adjusted to 2.6 percent, down 0.1 percentage point from the earlier figure, and the consumer price inflation rate was lowered to 1.4 percent, down 0.3 percentage point.

The Bank of Korea Gov. Lee Ju-yeol speaks Thursday in a press briefing. (Yonhap)

“(While) the pace of global economic growth has slowed, volatility in global financial markets has diminished slightly this year,” said BOK Gov. Lee Ju-yeol in a press briefing, explaining the reason for the rate freeze.

The domestic economy, despite adverse factors such as sluggish employment and contraction in facility and construction investment, will maintain its potential growth pace on the back of steady consumption and exports, as well as expanded government spending, he added.

“Though the total amount of exports slipped in December, due to the price decline for oil and semiconductors, the volume remained in an uptrend,” he said.

Consumer price inflation, which has been weighed down by sliding oil prices, will slowly recover to the mid 1-percent range as early as in the second half of the year, according to Lee. Earlier, the central bank had expected that the figure will be in the upper-1 percent range in 2019.

As for the economic growth rate, the central bank cut down its forecast to 2.6 percent, both for this year and next year, reflecting the lingering global uncertainties and their consequent impact on the domestic market.

Asia’s fourth-largest economy grew 2.7 percent last year, slowing from 3.1 percent in the previous year. Though the figure met the BOK’s earlier forecast, with the help of expanded government spending during the final quarter, it marked the lowest on-year growth since 2012.

“We expect that the economy will grow in a similar pace as last year, but uncertainties will be high,” Lee said.

While the recent progress in the Washington-Beijing trade talks and expanded fiscal spending acted as upside factors, the general slowdown in global growth -- especially in China and the eurozone -- and weakened demand for semiconductors are seen as persisting downside risks, according to the policymaker.

Lee nevertheless suggested that global demand for semiconductors, the key driver for South Korea’s exports, would likely recover in the latter half of the year.

When faced with skeptical questions concerning the country’s economic trend, the BOK chief reiterated his reluctance to describe the economy as having entered a “downturn,” distinguishing the term from “slowdown.”

“The term ‘economic downturn’ should be used (to indicate a downward move) after an economy has reached its peak but Statistics Korea has so far made no official judgment of the sort,” Lee said.

“It is true that the growth rate of the domestic economy has paced down amid weakening growth symptoms in the global economy, but the slowing rate will not be as drastic as widely feared.”

By Bae Hyun-jung (