SOUTH KOREAN ECONOMY

South Korea

South Korea cuts growth outlook, holds interest rate at record low

Central bank chief says economy expected to continue recovery phase

PUBLISHED : Thursday, 15 October, 2015, 10:12am
UPDATED : Thursday, 15 October, 2015, 12:24pm

South Korea's central bank cut its economic growth forecast for the fourth time this year on Thursday and left interest rates at a record low, as a lengthening export slump overshadowed a pick-up in domestic activity.

“The local economy is expected to continue its recovery phase, centred around domestic consumption,” Bank of Korea governor Lee Ju-Yeol said. “However, uncertainties surrounding the path to recovery remain high.”

The Bank of Korea shaved its economic growth forecast for this year to 2.7 per cent, from the 2.8 per cent it had predicted back in July.

It is the fourth reduction since the start of the year, when it had estimated 3.9 per cent growth.

The bank also left its key interest rate unchanged at 1.5 per cent – a decision that had been widely expected following a cut of 25 basis points in June.

Bank policymakers have slashed borrowing costs three times in the past year, citing the weak global economic outlook and sagging exports, which account for about half of South Korea's gross domestic product.

Shipments have shrunk every month, and a slowdown in China – the country's biggest trading partner – is expected to take a further chunk out of Asia's fourth-largest economy.

The low global oil price has kept inflation hovering below 1 per cent.

“We will closely monitor factors at home and abroad including ... the growth of household debt and the monetary policy of the US Fed,” the bank said.

Household debt in South Korea amounted to more than 615 trillion won (HK$4.2 trillion) as of September, with housing loans increasing at a record pace this year.

Concerns are growing that a rise in interest rates could lead to massive mortgage default.