SEOUL–South Korea’s central bank on Thursday slashed its 2015 economic growth forecast and kept its benchmark interest rate unchanged at a record low amid growing concerns of deflation. Bank of Korea (BOK) Governor Lee Ju-yeol put the new estimate for Asia’s fourth-largest economy at 3.4 percent growth this year, compared to an earlier forecast of 3.9 percent. The bank decision to leave its key rate unchanged at 2.0 percent was widely expected, although some analysts had predicted a cut of 25 basis points to boost tepid domestic consumption and ease deflation concerns stemming from low oil prices.
The South imports almost all of its energy needs from overseas, and a recent plunge in oil prices saw South Korean inflation hit 0.8 percent in December, the lowest rate for 15 years and far below the BOK’s target range of 2.5 to 3.5 percent. On Thursday, Lee said the bank had cut this year’s inflation forecast to 1.9 percent from 2.4 percent previously. Lee acknowledged last month that the bank would struggle to hold to its forecast of 3.9 percent economic growth in 2015, citing Europe’s economic struggles and a ��palpable�� slowdown in China. ��The global economy will continue a moderate recovery led by the U.S. but there are lingering risks including … weakening growth in the eurozone and China, financial and economic instability in oil producing countries,�� the BOK said in a statement on Thursday. Exports, which account for about half of the South’s economy, grew 1.2 percent year-on-year in the fourth quarter of last year, slowing from 3.6 percent in the third quarter and 3.2 percent in the second quarter.