South Korea's central bank on Thursday worried about an early exit of U.S. quantitative easing and economic slowdown in China.
"Uncertainties over the possibility of an earlier-than-expected tapering of U.S. quantitative easing, a slowdown in Chinese economic growth and the implementations of fiscal consolidation in major countries remain as downside risks to growth," Bank of Korea (BOK) said in a statement following the July monetary policy meeting.
The BOK left its benchmark interest rate at 2.5 percent for two straight months in July amid lingering concerns over the early U.S. exit.
The better-than-expected employment data in the U.S. boosted concerns that Federal Reserve may taper its bond purchases earlier than market watchers had expected. Fed Chairman Ben Bernanke said in a speech overnight that highly accommodative monetary policy for the foreseeable future is "what's needed in the U.S. economy," trying to quell market jitters over the early exit.
On the domestic front, the central bank forecast that a negative output gap for the South Korean economy would be maintained for a considerable time, but it noted that the gap would gradually narrow. The negative output gap means actual GDP growth stays below the one for potential growth.
The central bank said that it will closely monitor the effects of May's rate cut and of fiscal stimulus, including the supplementary budget plan worth 17.3 trillion won (15 billion U.S. dollars) unveiled in April.
Source: Xinhua
