[News Today] BOK LOWERS 2025 GROWTH OUTLOOK

[LEAD]
Once again, the outlook for this year's growth has been lowered. The Bank of Korea projects an economic expansion of 1.6% to 1.7%. This estimate assumes that the political climate will stabilize soon.

[REPORT]
The Bank of Korea froze the key interest rate due to concerns remaining about the soaring exchange rates.

The central bank said sluggish domestic demand points to the need to slash the basic rate immediately, and warned of the possibility of an unscheduled interim review of the nation's economic growth rate.

Rhee Chang-yong / Governor, Bank of Korea (Jan. 16)
We will share the outcome of our interim review because of very important changes.

As a result, the BOK expects the domestic economy to expand 1.6 to 1.7% this year.

In February last year, the central bank predicted the economy to grow 2.3% in 2025, but it cut the outlook to 2.1% in May and August, and again to 1.9% in November. This time, it downgraded it to 1.6 to 1.7%.

In just 11 months time, the growth outlook was slashed by as much as 0.7%p.

In 2020, the first year of the COVID-19 pandemic, the government added 66 trillion won, or over 45 billion dollars, to the national budget by allocating supplementary budgets four times.

The KDI lauded the move for preventing the economic growth rate from falling another 0.5%p at the time.

Cho Young-moo / LG Economic Research Institute
Lowering the growth rate was inevitable given the impact of the martial law incident and impeachment. Issues that were taken into account initially are not going well.

In its interim review, the BOK ran its predictions assuming political uncertainty will be resolved from the second quarter of the year.

This implies if the prediction goes awry, low growth could get worse.

Pundits say now that the central bank has significantly slashed the growth outlook, chances are high that it will cut the key rate as well.

However, the effect of a lower policy rate can only spread further if additional interest rates at commercial banks are stabilized.

This year, three commercial banks including Shinhan and Industrial Bank of Korea have lowered their additional interest rates. But NH Bank, inversely, raised its additional rate.