Seoul: South Korea`s central bank on Thursday left its key interest rate unchanged at 2.0 percent for December and warned its forecast of almost four percent growth next year would be "difficult" maintain.
The economy is recovering at a slower-than-expected pace, and the Bank of Korea has revised its growth forecast for this year to 3.5 percent from 3.8 percent, following growth of three percent in 2013.
The bank cut 0.25 percentage points off the rate in August and again in October.
While export figures were solid, the BOK`s monetary policy committee said domestic demand was alternating between positive and negative territories.
The 2.0 percent rate matches a record low last seen from February 2009 through June 2010, when Asia`s fourth-largest economy was trying to recover from the global financial crisis.
Signs of slowing growth pose an increasing challenge to Seoul policymakers, with a weak yen hurting the price competitiveness of South Korean firms against Japanese rivals in overseas markets.
Bank of Korea Governor Lee Ju-Yeol told journalists Thursday that the bank wold struggle to hold to its forecast of a 3.9 percent economic growth next year which it issued two months earlier.
"Having witnessed changes over the past two months, I am afraid it would be difficult for us to maintain the outlook of a 3.9 percent growth", he said.
Europe`s economic struggles have turned out to be "much worse" than expected and the slowdown in China is "palpable", he added.
There have been calls for a further rate cut, but the BOK is concerned by a surge in household debt as people take advantage of the low rate to take out mortgages.
Household loans jumped by a monthly record of 7.8 trillion won ($7.1 billion) in October alone, according to the bank.
Lee said the household debts were approaching the level where they constrict consumption, adding that total household debt is 1.6 times larger than total disposable incomes.
