By Nam Hyun-woo
The Bank of Korea (BOK) will be able to revise its 2017 growth forecast upward, as exports and investment are recovering at a faster pace than previously expected, the bank said Thursday.
The bank last month increased its growth outlook for this year to 2.6 percent from its earlier projection of 2.5 percent.
“The economy is showing signs of faster-than-expected growth on improving exports and investments. I think we can revise the growth outlook upward in July (when the BOK announces its second half growth outlook),” Lee said, emerging from the bank’s rate-setting monetary board meeting.
The BOK kept its key rate unchanged at an all-time low of 1.25 percent for the 11th consecutive month.
It was the first Monetary Policy Board meeting during the Moon Jae-in administration, which analysts said would show how the BOK will balance the sluggish economy and rising household debt.
The decision was in line with the market consensus that the BOK would freeze the rate for the time being although the U.S. Federal Reserve raised its policy rate in March and is expected to do so again soon.
“Even though the Fed may hike its key rate, the BOK will not automatically raise its key rate.”
On Thursday, the Fed dropped hints of resuming its key short-term interest rate hike when it meets in mid-June.
Lee said the current monetary policy is appropriate, adding that the U.S. Fed’s potential rate hike will not heavily affect domestic monetary policy.
The board cited “expansion of the global economic recovery” and “improved domestic exports and investments” for its decision.
“The global financial markets have shown generally stable movements, for example with the trend of rising stock prices continuing,” the board said. “The trend of domestic economic growth has expanded, as exports and investments have improved.”
Regarding the country’s snowballing household debt, which prevents the bank from narrowing the gap between its base rate and the Fed’s key rate, the BOK said the rate of increase has shown signs of slowing.
Earlier this week, the bank announced that the country’s household outstanding debt in the first quarter of this year increased 1.3 percent to reach an all-time high of 1,359.7 trillion won.
Given the country’s household debt accounted for 90 percent of its GDP in 2015, it is assumed the ratio is now hovering well above 90 percent.