Published On: Thu, Jul 14th, 2016

S. Korea cuts growth outlook, holds key rate at record low

South Korea's consumer prices rose only 0.9% from a year earlier during the first half of this year  © AFP/File Ed Jones

South Korea’s consumer prices rose only 0.9% from a year earlier during the first half of this year
© AFP/File Ed Jones

Seoul (AFP) – South Korea’s central bank on Thursday cut the country’s growth outlook and kept the key interest rate unchanged at a record low as exports sputters and demand slumps.

The Bank of Korea (BOK) said it expects the economy to expand 2.7 percent this year, just three months after cutting its forecast to 2.8 percent.

It also left borrowing costs unchanged at 1.25 percent as it looks to assess the impact of last month’s reduction — which was the first in a year — as well as newly announced stimulus measures.

Britain’s shock decision to leave the EU last month added to uncertainty for the South’s export prospects, bank governor Lee Ju-Yeol said.

“We believe that growing uncertainty (caused by the British vote) may slow growth of the global economy and trade and eventually impact our economy,” Lee told reporters.

Seoul’s finance ministry cut its own growth outlook to 2.8 percent from 3.1 percent last month following the British referendum result and unveiled a 20 trillion won ($17 billion) stimulus package.

The South’s economy expanded 2.6 percent last year — the lowest since 2012.

Thursday’s revision on the growth outlook came as Asia’s fourth-largest economy struggles with increasing unemployment, mounting consumer debts and falling exports.

Exports, which account for nearly half of the country’s economy, have fallen for 18 straight months.

Total household debts had snowballed to more than $1 trillion as of late March, while wages have stagnated and housing prices have continue to rise.

Lee also raised concern over the impact of Seoul’s new sweeping anti-corruption law on domestic spending after it takes effect in September.

“Since the law covers a far wider industries and slaps far harsher punishment than before, we believe that it would…certainly affect certain industries and overall consumer spending,” he said.

Potential impact of the anti-corruption laws played a role in the downward revision of the BOK’s growth outlook, Lee added.

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