[Photo by Lee Seung-hwan]

The chief of South Korea’s central bank assured the monetary policy will stay “accommodative” to aid the fragile economy against multiple headwinds and warned this year’s growth could underperform its latest downgraded estimate of 2.2 percent if trade barriers from Japan broaden.

“Japan’s export curbs were not fully factored into the recent growth forecast but they could hurt the local economy if conditions worsen,” Lee Ju-yeol, governor of Bank of Korea (BOK), told lawmakers at the Strategy and Finance Committee at the National Assembly Tuesday.

“If the situation deteriorates, we may have to revise down the estimate,” he added.

The BOK last week lowered the policy rate by 25 basis points to 1.50 percent, its first rate cut in more than three years. It also trimmed its 2019 economic growth outlook to 2.2 percent from the 2.5 percent projected in April, in what would be the country’s weakest growth since the global financial crisis of 2009.

“Trade protectionism is putting a dent on global trade and slowing down the world economy,” he said. “This trend is expected to continue for some time and to be weighed heavily by the China-U.S. trade talks and Chinese economic growth.”

Domestic economic growth was also “weaker than expected” as exports and facility investment slumped further from sluggish global trade and delayed recovery in the chip industry, he said.

Consumer prices rose 0.7 percent in June from a year ago, with the headline inflation bogged down in the zero territory for the sixth straight month amid weakening demand-side inflationary pressures and sustained decline in petroleum product prices, Lee said.

“Inflation is expected to hover around the 1 percent level before moving upwards but it would take some time to reach the bank’s target rate of 2 percent,” he said.

Lee reassured lawmakers that the BOK would react quickly to any volatility in the financial and foreign exchange markets in the face of external risks like the Japanese export restrictions. Earlier this month, Japan tightened export controls on materials Korea needs to make semiconductors and display screens. Japan cited national security reasons but Korean officials have rebuked the move as retaliation for Korean court rulings on Japanese wartime reparations.

When asked whether the bank was considering further rate cuts, Lee avoided giving a direct answer, saying the decision would be made depending on changes in the real economy and capital flow movements.

The next rate-setting meeting is scheduled for August 30.

By Kim Yeon-joo and Kim Hyo-jin

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]