The Bank of Korea raised its forecast for Korea's economic growth this year to 2% from 1.8%. It lowered next year's growth outlook to 1.8% from 1.9%.
On the 26th, the Bank of Korea held a regular meeting of the the Bank of Korea's monetary policy committee and kept the benchmark interest rate unchanged at 2.5% per year. It then announced forecasts for economic growth and consumer price inflation for this year and next year.
The Bank of Korea (BOK) cited easing concerns about an economic slowdown as the reason for upgrading this year's growth outlook. As robust exports continue on the back of the semiconductor supercycle, the Business Sentiment Index this month came in at 94.2, up 0.2 points from last month. The Consumer Sentiment Index also rose 1.3 points from January to 112.1, improving for a second straight month.
The 2% projection the Bank of Korea (BOK) presented for this year matches the government's outlook. It is higher than the view of the Korea Development Institute (KDI) and the International Monetary Fund (IMF) at 1.9%, but lower than the Organisation for Economic Co-operation and Development at 2.2% and eight major investment banks (IBs) at 2.1%.
The Bank of Korea (BOK) also slightly adjusted its consumer price inflation outlook. It raised this year's forecast to 2.2% from 2.1% and kept next year at 2%. While the slump in domestic demand is easing, the rise in the won-dollar exchange rate appears to have acted as an inflationary factor. When the exchange rate rises, import prices increase and can spur overall prices.
The won-dollar exchange rate has shown a volatile trend recently. After falling to the 1,420-won range at the end of last month, it surged to the 1,470-won range early this month and has now fallen back to the 1,420-won range, indicating increased volatility.
In its statement on the direction of currency policy released that day, the Monetary Policy Board of the Bank of Korea (BOK) said, "The domestic economy is expected to see continued recovery in consumption, and the increases in exports and facility investment are likely to be stronger than initially expected," adding, "Prices are expected to be affected by international oil prices and the exchange rate, domestic and external business conditions, and the government's price stabilization measures."