Pessimistic Outlook
The Bank of Korea adjusted its GDP growth forecast for this year downward from 3.4 percent to 3.1 percent, and its consumer price inflation forecast from 1.9 percent to 0.9 percent, while freezing the key interest rate.
“The cut in the forecasts is based on the re-calculation of last year’s GDP as of late and the less-than-expected figures for the fourth quarter of last year,” the central bank explained, adding, “Also, we did not touch the benchmark interest rate because we have reduced it three times recently, including last month. The effects remain to be watched for now, with the household loan balance showing a rapid increase.”
With regard to an interest rate hike in the United States, he said that the central bank would allow for both the hike and macroeconomic conditions in determining the interest rate, but Korea’s base rate would not have to be synchronized with that of the United States. “At present, the real interest rate of Korea based on the deposit and loan rates is close to zero, as is the case with that of the U.S., and it seems that the current real interest rate is sufficiently supporting the real economy,” he continued.
He also mentioned that the future monetary policy of his bank would reflect changes in macroeconomic conditions and downward risks. This implies that the Bank of Korea would refrain from cutting the base rate, contrary to market participants' expectations.