BOK may raise growth forecast

Korea’s central bank hinted at the possibility of an upward revision on economic outlook this year after it held the key interest rate steady on Thursday in the first rate-setting meeting since President Moon Jae-in took office.

Lee Ju-yeol, governor of the Bank of Korea, said the bank would likely raise its projection of GDP growth this year from the current estimate of 2.6 percent during its next forecast revision meeting in July.

“The country’s economy will grow faster than expected in April,” when the bank last revised its estimate, the governor said. “Considering different economic indicators, the growth outlook can be revised up in July.”

Lee cited strong exports as the major force propelling Asia’s fourth-largest economy. Analysts believe the country’s recent economic indicators back the upbeat forecast.

“It is possible,” said Park Hyung-joong, head of the market strategy division at Daishin Securities, when asked whether the Korean economy could grow more than 2.6 percent this year, “but only under the premise that current economic conditions continue.”

Park added that the extra government budget requested by the Moon administration would likely add 0.1 to 0.2 percentage points to GDP growth.

However, he maintained that the budget would not have an immediate impact on the domestic economy since overseas conditions will a play more vital role on the Korean economy in the second half.

In line with market expectations, the Bank of Korea kept its key interest rate unchanged at 1.25 percent for an 11th straight month.

A combination of soaring household debt and uncertainty about the U.S. Fed’s rate hike tempo has made it hard for the Bank of Korea to move rates, especially when the new government’s economic policies are only just beginning to take shape.

“It seems the central bank has opted to maintain a wait-and-see approach to see how the government’s economic policy directions are formed and implemented,” said Ahn Jae-kyun, an analyst at Shinhan Investment.

The governor also struck a conciliatory note on Moon’s core economic proposals aimed at creating more jobs. The president’s policy advisory committee has made it clear that job creation would be a top policy priority, pledging a 10 trillion won budget to tackle the issue. Asked whether the central bank should make stable employment one of its objectives, the governor answered that the issue “requires serious discussion.”

BY PARK EUN-JEE, CHOI HYUNG-JO [park.eunjee@joongang.co.kr]