South Korea confirmed that inflation eased while Asia’s fourth-largest economy continued to slow, adding to expectations that the government may take measures to boost growth and the central bank may not raise interest rates further.
“While inflation has recently eased, the recovery in domestic demand has moderated,” said the Ministry of Economy and Finance on Friday in its monthly economic assessment report, called the Green Book. “With exports staying sluggish and manufacturers’ business sentiment contracting, the trend of an economic slowdown has continued.”
Rampant inflation has gradually lost steam since then, easing to 4.8% in February, the slowest pace in 10 months, although still far above the central bank’s long-term target of 2%.
Finance Minister Choo Kyung-ho last week said he expected inflation to decline further to the low-to-mid 4% level in March and 3% level in the second quarter.
ECONOMY REMAINS SLUGGISH
The ministry said in the Green Book for the second straight month that the economy continued to slow, suggesting the government may focus more on economic growth policies.
“We will go all out to vitalize the economy in areas such as exports and investments,” said the ministry in the report.
The ministry’s pledge in the latest economic report suggested that the ministry may unveil measures to boost domestic demand in the near term, according to a government source.
Choo on March 9 said the presidential office shared concerns over domestic demand. Myeong-dong, a major shopping district in Seoul, is not crowded amid a sluggish Korean economy NO MORE RATE HIKES
The Bank of Korea is more likely to keep up interest rate hikes as worries about an economic slowdown grow amid woes over the potential crisis in the US and European banking sectors.
The Federal Reserve is expected to raise its benchmark interest rates by just 25 basis points (bps) next week with some forecasts of a cut later this year. The European Central Bank on Thursday jacked up its three policy rates by 50 bps but dropped forward guidance, stoking views that its hawkish stance may have been eased.
Samsung Securities Co. expected the BOK to maintain the base interest rate at the current 3.5% by year-end, changing its earlier forecast of one more hike to 3.75%.
“The unexpected SVB crisis heightened vigilance against financial instability, while expectations for the Fed’s terminal rate were lowered,” said Kim Jiman, a senior analyst at Samsung, referring to the point where the federal funds rate is predicted to climb before it is trimmed back.
The BOK is unlikely to shift its policy stance to easing as the monetary authority continues pledges to curb inflation, analysts said.
Central bank policymakers also defied calls for an interest rate cut this year.
“We have never considered a pivot,” BOK Monetary Policy Board Member Park Ki Young told reporters on Thursday, referring to a monetary policy shift. “We have no choice but to stick to our mandate of price stability and financial stability in the current situation.”
