BOK raises growth forecast to 3%

Korea’s central bank raised its growth forecast for the year to 3 percent from a previous projection of 2.9 percent and froze its key interest rate on Thursday in a unanimous decision that was widely expected by the market.

Lee Ju-yeol, governor of the Bank of Korea, said the main driver behind the upward revision was an improved outlook for the global economy.

“In terms of the Korean economy, the growth will rise higher in the first half than the second half because of a base effect,” he said, citing exceptional performance during last year’s second half.

The 3 percent forecast is on par with predictions by the Ministry of Strategy and Finance, International Monetary Fund and Organization for Economic Cooperation and Development.

The rate freeze on Thursday was in line with market expectations as analysts predicted the Bank of Korea would likely pause to evaluate the impact of its hike in November. It is also examining the effects of other economic factors, such as a higher minimum wage that took effect at the start of the year and low inflation.

Analysts closely watched for clues that might hint at the possibility of a further rate increase after the bank raised the key rate in November for the first time in more than six years.

Kang Seung-won of NH Investment & Securities said Lee’s comments and economic assessment reaffirm the bank’s cautious approach toward another hike. “[The bank] may have raised its growth forecast from 2.9 percent to 3 percent, but it also lowered the inflation rate from 1.8 percent to 1.7 percent,” Kang said. “The statement also maintained that the bank would maintain an accommodative stance on monetary policy and struck a less urgent tone on the growth of household debt, which means the need for a rate hike has been eased.”

Korea is experiencing record levels of household debt, and conventional wisdom says raising rates could turn people away from borrowing. But when the bank sees a less urgent need to control debt, it is less inclined to raise rates.

The governor also touched on the cryptocurrency phenomenon, saying it would not pose a severe challenge on economic stability and stressing that cryptocurrencies were not legal tender. Still, he acknowledged that the bank had formed a task force to explore the impact of cryptocurrencies on the country’s economy as well as the possibility of the central bank issuing its own digital currency. “We are researching to see if we might encounter a circumstance where a digital currency is needed,” he said, “and if so, what kind of technology is required.”

Meanwhile, the chairman of the Financial Services Commission clarified the measures that the regulator might take on cryptocurrency exchanges after a week of flip-flopping among various government officials.

“We are considering both an all-out ban on exchanges and partial shutdown of problematic exchanges,” Choi Jong-gu told lawmakers Thursday in a meeting at the National Assembly.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]