News Analysis: Doubts raised over S. Korean central bank growth outlook cut

When the Bank of Korea (BOK) cut the country's 2015 economic growth outlook to a lower-than-expected level on Thursday, much doubts were raised on the true motive behind the surprising move.

The BOK revised down its 2015 outlook for the country's gross domestic product (GDP) growth to 3.4 percent from 3.9 percent estimated three months earlier. It was much lower than the government's forecast of 3.8 percent and those estimated by conservative think tanks.

BOK Governor Lee Ju-yeol told reporters right after the January rate-setting meeting that fiscal expenditure fell in the fourth quarter of 2014 on lack of tax revenue and lower mobile device sales on tighter regulations.

But questions remained over why the economic slowdown in the fourth quarter last year would drag down the growth outlook for the next year, since lower growth tends to result in future higher GDP growth due to the so-called "low-base effect."

Shin Woon, director general of BOK's research department, said at a separate press conference that if economic growth deviates from its long-term trend, it may have difficulties recovering its earlier momentum quickly.

The fourth-quarter GDP growth was originally estimated at 1 percent on a quarterly basis, but it was downgraded to 0.4 percent on "unprecedented factors" like less government expenditure, Shin said.

The BOK is believed to have run financial engineering models, composed mostly of complex math and statistics, to calculate its growth outlook.

The bank said it has no exact number on how much the government spends in the fourth quarter, but model-estimating results have indicated lower fiscal expenditure.

Some statistical experts often talked about a conspiracy theory, in which the BOK targets at a fixed growth outlook number, for example 3.4 percent, in advance and computes it by adjusting variables that are put into the models.

Granted it is not true, the sharp downward revision on the 2015 growth outlook is likely to serve as a "safety net" for the BOK, which lowered its benchmark interest rate by 25 basis points in August and October each to a record low of 2 percent.

In 2014, many lawmakers of the ruling Sanuri Party as well as Finance Minister Choi Kyung-hwan put pressure on the BOK to lower interest rates to stimulate the sluggish economy, causing worries about the central bank's independence.

Last year's rate cuts caused much controversy as market players insisted that the central bank offered no signals before unexpectedly deciding to lower borrowing costs.

The BOK governor seemed to have no willingness to alter the policy rate at present, but if political interference is to come again, the downward revision of the growth outlook might serve as an "excuse" for the bank. Endi