Bank of Korea warns economic growth is poised to drop below 3pc
SEOUL: Bank of Korea Governor Lee Ju Yeol warned Wednesday that economic growth for 2016 is poised to fall below 3 percent and said the impact of further interest-rate cuts may be limited. The comments come amid a change in the BOK's board and speculation of additional rate cuts given the ruling party's request for the bank to follow the lead of Japan and Europe's central banks to purchase more bonds. Korea's government bond yields fell to the lowest level in more than a month on Wednesday.
"First-quarter growth was weaker than expected, but recently there are some positive signs like the rebound in global oil and improvement in sentiment," Lee said at a press briefing. "While volatility in financial markets has decreased recently and capital outflow has stabilized, factors remain that limit the impact of rates, like sluggish external demand and financial stability issues like household debt." The BOK, which in January forecast 3 percent growth and 1.4 percent inflation for 2016, will revise its economic outlook on April 19.
The central bank this week announced four nominees to replace board members whose terms end April 20. As the nominees are either from the government or have worked for statefunded research organizations, economists including those at Nomura Holdings and Standard Chartered Bank have said the change boosts their rate-cut calls.
"Investors seem to speculate new board members' stance based on their past speeches and the institutions that recommended them, but based on my experience, members' policy decisions change when economic situations change," Lee said. "Korea's monetary policy has to be data-dependent when domestic and external situations are uncertain." The ruling Saenuri party said on Tuesday in its economic policy platform ahead of the April parliamentary election that the BOK should adopt aggressive policies including more debt purchases to help funds flow directly to necessary areas. Saenuri suggested that the BOK directly purchase debt issued by the state-run Korea Development Bank to provide it with more funds to help restructure companies, and also to purchase mortgage-backed securities to ease the household debt burden.