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Bank of Korea Lee Ju-yeol. (Hankyoreh archives)

Bank of Korea (BOK) Governor Lee Ju-yeol has described the International Monetary Fund (IMF)’s downward adjustment in Korea’s potential growth rate as “excessive.” During a press gathering for “looking at the status of price stability targets” on June 25, Lee stated, “As the IMF lowers its growth forecast for the global economy, I can’t help but feel that they have slightly overstated the level of impact on Korea.” Lee added, “I do not believe conditions have changed over the past month to the extent that the [-0.2%] adjustment in the projected growth rate for the Korean economy is justified.”

On June 24, the World Economic Outlook Update released by the IMF adjusted its forecast of Korea’s 2020 growth rate to 2.1%, a reduction of 0.9 percentage points over April. Due to the repercussions of the COVID-19 pandemic, the global growth rate forecast was lowered to -4.9%, a reduction of 1.9 percentage points.

The economic forecast released by the BOK on May 28 was based on the scenario where the number of global confirmed cases reaches a peak in the second quarter and then begins to stabilize, leading to a gradual resumption of economic activity. “Although it currently appears that COVID-19 may take a bit longer to subside, we are seeing a sequential resumption of economic activity, so this is not a great deviation from the BOK’s assumed scenario,” Lee stated.

Lee predicted that the trend of low inflation would persist for some time even after the virus has been subdued due to an increase in highly risk-averse “super savers.” “After a massive pandemic or economic crisis, households and businesses tend to reduce debt and increase savings due to anxiety,” Lee said. “This hinders the recovery in consumption and investment, and has the potential to slightly lower consumer prices.” The rapid adoption of non-face-to-face online transactions in response to COVID-19 may place additional downward pressure on inflation. In May, the inflation rate was -0.3%. “We will maintain the basic framework of the current inflation targeting system while seeking an alternative monetary policy system to overcome its limitations,” Lee added.

By Han Gwang-deok, finance correspondent

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