SEOUL - South Korea's central bank recently cut its economic growth forecast for this year and 2015, its governor said on Wednesday, but the outlook still stresses negative over positive factors.
Bank of Korea Governor Lee Ju-yeol said at an economic forum in Seoul that growth in Asia's fourth-largest economy could be hit if external conditions worsened, such as a tough tightening in US monetary policy.
Lee said the central bank had cut interest rates in August and this month because sentiment remained weak - even after a some time had passed since the ferry sinking in mid-April that darkened the public mood. "Even if we do post 3.5 per cent growth this year, this would be lower than our potential growth rate and we felt there was a need to pull forward the timing of our recovery," said Lee, explaining the central bank's recent monetary policy.
Earlier this month, the Bank of Korea lowered its growth forecast for this year to 3.5 per cent from 3.8 per cent. Lee said on Wednesday the decision to downgrade its forecast was made in the face of weaker-than-expected growth in the third quarter.
The governor reiterated his view that South Korea's stubbornly low inflation was due to supply-side factors such as falling agricultural and crude oil prices.
"If agriculture and crude oil prices had stayed steady from last year, inflation rates would be standing in the 2-per cent range this year." said Lee.
South Korea's annual inflation has been well below the lower end of the Bank of Korea's 2.5 to 3.5 per cent target band since June 2012, reaching an annual 1.1 per cent in September.