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Bank of Korea could slash nation's growth rate forecast

Updated: 2014-07-07 07:10:35 (KST)
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The Bank of Korea is expected to slash the country's growth rate forecast by up to zero.two-percentage point to 3.8- or 3.9-percent this Friday.
If that happens, it could be a sign that the central bank will lower the nation's key interest rate,
which has stayed at 2.5-percent for more than a year.
This comes as major financial institutions like the International Monetary Fund are expected to cut their growth projections for the global economy from the current 3.6-percent.
A move like that would be sure to affect the export-driven Korean economy, which is struggling amid a slow economic recovery in the U.S. and sluggish domestic consumption following the Sewol-ho ferry incident.
Korea's mining and manufacturing industries shrank by 2.7-percent in May from the previous month, the sharpest reduction since December 2008.
However, some say cutting the interest rate now could actually send an ominous message about the Korean economy.
An analyst from Hanyang Securities told K-B-S News that the Korean central bank should cut the interest rate at least twice to boost liquidity in the nation's economy.
The analyst said that if the Bank of Korea were to cut the interest rate to 2-percent, the rate during the global financial crisis, it could prompt major participants in the Korean economy to save capital rather than expand their investments.
This is the opposite of what the Korean government wants them to do.
This is why the world's top investment banks and local financial institutions think the Bank of Korea will want keep the interest rate the same until the end of the year.
And some, including Barclays and Morgan Stanley, have even predicted the central bank will actually raise the interest rate in the third or fourth quarter.
Kim Ji-yeon, Arirang News.


Reporter : jiyeonkim@arirang.co.kr

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