The Bank of Korea lowered its annual economic growth forecast for this year from 2.8% to 2.7% for South Korea. At the same time, the central bank adjusted its forecast for next year to 2.9%, predicting that the South Korean economy would achieve an annual economic growth rate of less than 3% for the third consecutive year. Last year, the South Korean economy showed an economic growth rate of 2.6%.
On July 14, the Bank of Korea held a regular Monetary Policy Committee meeting, presided over by governor Lee Ju-yeol, and froze the key interest rate at 1.25% unanimously.
“We cut the key interest rate from 1.50% to 1.25% last month and this is expected to raise this year’s economic growth rate by 0.2 percentage points with the recent financial reinforcement by the South Korean government,” the central bank governor explained, adding, “Still, the effect can become different depending on the timing and details of the government’s supplementary budget because this expectation is based on the premise that the supplementary budget would be effectively executed in the near future.” This implies that the central bank will keep watching for the time being how the interest rate cut and supplementary budget will affect the national economy.
The Bank of Korea released its national economic forecast for the second half of this year on the same date, too. In its forecast, the bank reduced this year’s and next year’s economic growth rate estimates each by 0.1 percentage point compared to its estimates in April this year to 2.7% and 2.9%, respectively. Likewise, it adjusted its inflation rate estimate for this year from 1.2% to 1.1%, mentioning Brexit, an interest rate hike in the United States and corporate restructuring as the South Korean economy’s major downside risks.