Bank of Korea Freezes Interest Rates, Reduces Growth Forecast

luvsmiling, April 10, 2015, 9:39 a.m.


The Bank of Korea on Thursday slashed its growth forecast for this year from 3.4 percent to 3.1 percent. The BOK cited intensifying currency competition around the world and a slow worldwide recovery, exacerbated by slowing export growth. 



The Ministry of Strategy and Finance has yet to lower its 3.8 percent forecast, but several foreign and domestic think tanks have projected growth will drop to below three percent. Nomura Securities predicts 2.5 percent growth and BNP Paribas 2.7 percent.

Central bank Governor Lee Ju-yeol told reporters, "China's economic growth is slowing, while the Korean won had weakened less against the U.S. dollar than other currencies, which has a negative impact on exports." 



The BOK forecasts exports will drop 0.6 percent in the first half of this year and grow only 2.9 percent over the whole year. The central bank also lowered its inflation outlook for this year from 1.9 percent to 0.9 percent -- the first time since 1999, shortly after the Asian financial crisis that inflation hovered below one percent. 

Chang Min at the BOK said, "The main reason is the decline in prices of seven petroleum products out of the total 481 products that are surveyed." Chang added it is too early to worry about deflation. However, the BOK kept the key interest rate frozen at 1.75 percent. Lee said the central bank lowered interest rates last month to reflect a looming cut in the growth forecast and the rapid growth in household loans. 

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