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

The Bank of Korea headquarters in Seoul.
The Bank of Korea headquarters in Seoul. PHOTO: BLOOMBERG

SEOUL (AFP) - South Korea's central bank on Thursday (Oct 14) cut its economic growth forecast for the fourth time this year 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 (BOK) governor Lee Ju-Yeol told reporters.

"However, uncertainties surrounding the path to recovery remain high," Lee said.

The BOK 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 one percent.

"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 (S$746 billion) as of September, with housing loans increasing at a record pace this year.