By Kim Jae-kyoung
The central bank will place a top policy priority on propping up domestic demand and improving the local job market this year to prevent growth momentum from eroding further, according to the nation's top central banker, Wednesday.
In his New Year message, Bank of Korea (BOK) Governor Lee Seong-tae said that the central bank will carry out a monetary policy aimed at preventing financial market jitters from accelerating the economic downturn.
His remarks hinted that the central bank will further slash its key rate in coming months. It has cut the seven-day repurchase agreement rate by a total of 2.25 percentage points to 3 percent since October.
``While inflationary pressure is expected to ease, the economy is feared to lose growth momentum due to an anticipated decline in exports triggered by the deepening global economic downturn,'' he said.
``Given this year's growth outlook, it is likely that corporate bankruptcies will rise and investment will come to halt, eroding growth momentum,'' he added.
The central bank forecast that growth will slow to 2 percent next year, the lowest level since a 6.9 percent contraction in 1998 when the Asian financial crisis shook the country. In the fourth quarter of 2008, the economy was estimated to contract 1.6 percent, the first quarterly setback since the first quarter of 2003.
Lee also promised to make further efforts to ease the credit crunch by supplying liquidity to the financial system in a timely manner as there is a chance that the squeeze will continue.
``The BOK will make efforts to make more credit available to the liquidity-squeezed sector by actively tapping open market operations and the bank's low-rate loans earmarked for smaller firms,'' he said.