The Bank of Korea’s monetary policy board will meet Thursday for its monthly review of interest rates, but all eyes are on the central bank’s outlook on the local economy this year, expected to be unveiled on the same day.

With a rate freeze seen as a near certainty this month, investors are waiting for the central bank’s revised outlook for economic growth, with many predicting a downward revision from its previous 3.2 percent estimate.

In October, the BOK revised its growth estimate for Asia’s fourth-largest economy in 2016 to 3.2 percent from the earlier 3.3 percent. BOK Gov. Lee Ju-yeol has recently mentioned the need for another revision, citing “downward risks” for the economy. 

“We made that forecast (3.2 percent growth) on presumption that oil prices would stay in the $50 per barrel range. But recent drops in international oil prices were steeper than we thought,” Lee has said.

Dubai crude, Korea’s benchmark oil, currently sells for below $30 per barrel.

From the start of the 2016, the economic mood has been gloomy in Korea, as financial markets took a series of blows from mega events ― China’s stock market turmoil, a flare-up in geopolitical tensions in the Middle East and a North Korean hydrogen bomb test ― that highlighted the tough road ahead.

The global crosscurrents, which also came with weak commodity and oil prices and the U.S. tapering of quantitative easing, cast dark clouds, while the domestic situation is failing to provide much support.

Growth forecasts by private economists and foreign investment banks are well below the estimates of BOK and the Finance Ministry at 3.2 percent and 3.1 percent, respectively.

Projections by all private local research institutes are in the 2 percent range, with the LG Economic Research Institute having the gloomiest outlook of 2.5 percent growth.

According to the Korea Center for International Finance, the average for the forecasts made by six foreign investment banks, including Morgan Stanley and Citigroup, stands at 2.6 percent, down 0.8 percentage points from an earlier estimate of 3.4 percent.

Korea’s key interest rate stands at a record low 1.5 percent, unchanged since June. Experts and investors alike expect the BOK to stay put this month, given the governor’s repeated remarks that the monetary easing policy will stay for the time being, despite the U.S. Fed’s interest rate hike in December. 


By Lee Sun-young 
(milaya@heraldcorp.com)