By Park Hyong-ki
The Bank of Korea (BOK) is expected to lower its growth outlook again in the coming months due to an economic slowdown on weak employment and consumption, analysts said Monday.
They expect that worsening economic data will make it more difficult for the central bank to move its rate upward as any hike could further hurt business and consumer confidence.
Lee Mi-seon, an analyst at Hana Financial Investment, forecast that the central bank will revise down its growth projection in October when the policy board convenes for its rate decision.
It readjusted its forecast from 3 percent to 2.9 percent in July. The board has two more meetings left in October and November.
"A revised growth projection expected next month would warrant the BOK to maintain its key rate in October and November," said Lee.
The last time the central bank raised the rate by 0.25 percentage points to 1.5 percent was in November 2017. The BOK's policy board kept it at 1.5 percent last month, with only one of the seven board members voting for a hike.
The outlook for economic growth has become more downbeat after the BOK announced last week that the nation's gross domestic product (GDP) grew 0.6 percent in the second quarter from a quarter ago, down 0.4 percentage points from the previous quarter.
With growing risks stemming from poor job data and the trade dispute between the United States and China, the BOK is left with very little room for maneuver, the analysts noted.
It will, however, likely leave open the possibility of slightly increasing its interest rate as it indicated in August that Korea is not going to deviate too much from its course toward reaching its growth potential this year, they added.
Also, the central bank will have to consider the widening rate gap between it and the U.S. Federal Reserve, which is projected to raise its interest rate twice in the latter half.
"Given the economic circumstances, it would be appropriate for the BOK to lower its rate. But it will not be able to do it considering the Fed's hikes," said Kim Doo-un, an analyst at KB Securities.
The circumstances are decreasing corporate investment and employment. Also, an index measured by the composite leading indicator, which projects the country's future economic cycle, has been sliding since March this year. It stands at 99.8 as of July, below the 100 threshold, Kim noted, citing recent data from Statistics Korea.
The country created only 5,000 jobs in July.
The BOK indicated it would have to further lower its employment forecast far below its initial estimation of a monthly average of 180,000 jobs to be created this year.
However, the central bank will not be able to do much with its monetary policy to help boost employment as the weak job market is a result of corporate restructuring amid the downturn in the shipbuilding and automobile industries.
The analysts agreed, saying it faces limits in steering the economy.
"It is not in a position to actively and preemptively deal with current and future circumstances," Yoon Chang-hyun, an economist at the University of Seoul, said.
Kim of KB Securities said the BOK could increase the rate, despite lowering the country's growth forecast in October.
This is because the brokerage agrees with the central bank's assessment that the country would still achieve the potential growth rate of 2.8 percent and see inflation near its target of 2 percent as the value of the won per dollar gets weaker.
The Bank of Korea (BOK) is expected to lower its growth outlook again in the coming months due to an economic slowdown on weak employment and consumption, analysts said Monday.
They expect that worsening economic data will make it more difficult for the central bank to move its rate upward as any hike could further hurt business and consumer confidence.
Lee Mi-seon, an analyst at Hana Financial Investment, forecast that the central bank will revise down its growth projection in October when the policy board convenes for its rate decision.
It readjusted its forecast from 3 percent to 2.9 percent in July. The board has two more meetings left in October and November.
"A revised growth projection expected next month would warrant the BOK to maintain its key rate in October and November," said Lee.
The last time the central bank raised the rate by 0.25 percentage points to 1.5 percent was in November 2017. The BOK's policy board kept it at 1.5 percent last month, with only one of the seven board members voting for a hike.
The outlook for economic growth has become more downbeat after the BOK announced last week that the nation's gross domestic product (GDP) grew 0.6 percent in the second quarter from a quarter ago, down 0.4 percentage points from the previous quarter.
With growing risks stemming from poor job data and the trade dispute between the United States and China, the BOK is left with very little room for maneuver, the analysts noted.
It will, however, likely leave open the possibility of slightly increasing its interest rate as it indicated in August that Korea is not going to deviate too much from its course toward reaching its growth potential this year, they added.
Also, the central bank will have to consider the widening rate gap between it and the U.S. Federal Reserve, which is projected to raise its interest rate twice in the latter half.
"Given the economic circumstances, it would be appropriate for the BOK to lower its rate. But it will not be able to do it considering the Fed's hikes," said Kim Doo-un, an analyst at KB Securities.
The circumstances are decreasing corporate investment and employment. Also, an index measured by the composite leading indicator, which projects the country's future economic cycle, has been sliding since March this year. It stands at 99.8 as of July, below the 100 threshold, Kim noted, citing recent data from Statistics Korea.
The country created only 5,000 jobs in July.
The BOK indicated it would have to further lower its employment forecast far below its initial estimation of a monthly average of 180,000 jobs to be created this year.
However, the central bank will not be able to do much with its monetary policy to help boost employment as the weak job market is a result of corporate restructuring amid the downturn in the shipbuilding and automobile industries.
The analysts agreed, saying it faces limits in steering the economy.
"It is not in a position to actively and preemptively deal with current and future circumstances," Yoon Chang-hyun, an economist at the University of Seoul, said.
Kim of KB Securities said the BOK could increase the rate, despite lowering the country's growth forecast in October.
This is because the brokerage agrees with the central bank's assessment that the country would still achieve the potential growth rate of 2.8 percent and see inflation near its target of 2 percent as the value of the won per dollar gets weaker.
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