South Korea's central bank on Friday slightly raised its inflation forecast for this year while cutting its economic growth projection, a day after holding interest rates steady in the face of a softening global economy. The Bank of Korea now sees 2011 consumer inflation at 4.0 percent, compared with its April forecast of 3.9 percent and an actual 2.9 percent set in 2010, it said in a statement.
It also lifted core inflation forecasts, which strip out volatile food and energy prices, for both 2011 and 2012. "The increased forecast for consumer prices is attributed to the faster-than-expected pass-through of supply shocks to general prices," the central bank said in a statement.
The inflation projections are in line with the finance ministry's latest estimates released late in June. Asia's fourth-largest economy is now projected to grow by a real 4.3 percent this year after a 6.2 percent rise in 2010, compared with the central bank's previous projection for 4.5 percent growth.
The central bank slashed its forecast on construction investment for the year to negative growth, reflecting the sector's dismal performance in the first half, and saw weaker private spending growth than its April view. For 2012, the Bank of Korea expected softer growth in both private consumption and exports than its April estimations, taking into account higher consumer prices.
It estimated gross domestic product during the second quarter of this year expanded by a seasonally adjusted 0.9 percent from the preceding quarter, when it expanded by 1.3 percent. The central bank said it expected quarterly growth of about 1 percent every quarter next year. Exports will continue to lead growth in the world's No 7 exporter, accounting for 55.5 percent of gross domestic product in 2012 compared to this year's estimated 52.7 percent, it added.