10/16/16

Bank of Korea flags Samsung export risks, says recovery still on track

South Korea's central bank conceded on Thursday that Samsung Electronics Co Ltd's smartphone crisis could potentially hamper economic growth, but largely maintained its view that the country's recovery is still on track.

After the Bank of Korea kept interest rates unchanged at 1.25 percent in a unanimous vote, Governor Lee Ju-yeol said this year's growth was expected to reach 2.7 percent, steady with the bank's last forecast made in July.

"Third quarter growth seems to have met our expectations, and it looks like it won't be too difficult to obtain our growth forecast," Lee told a news conference.

The governor explained the bank's monetary policy board had factored in the gradual economic recovery seen so far, household debt that continues to rise at a swift pace, and a pending rate hike by the U.S. Federal Reserve.

All but one of 24 economists surveyed by Reuters had expected the BOK to leave the policy rate at its record low 1.25 percent as board members weighed the risks to household indebtedness from further rate cuts.

As markets expected, next year's growth forecast was revised down to 2.8 percent from 2.9 percent.

Lee said the bank needed more time to assess the effects that Samsung Electronics' scrapping of its fire-prone Galaxy Note 7 premium smartphone would have on the economy.

Samsung's problems were calculated into Thursday's revisions to the BOK's economic forecasts that include growth and inflation rates, he said, but the bank was not able to reflect the most recent changes because of time constraints.

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