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South Korea finance minister voices deflation fears: report

Wednesday, March 4, 2015 - 15:26

[SEOUL] South Korea's Finance Minister Choi Kyung-Hwan voiced deflation concerns Wednesday after inflation last month hit its lowest level in more than 15 years, despite record low interest rates.

"Concerns about deflation are worrying due to a prolonged period of low inflation," Mr Choi was quoted by the Yonhap news agency as telling a forum in Seoul.

Falling crude oil prices have pushed down consumer prices in South Korea, with data Tuesday showing inflation at just 0.5 per cent in February - the lowest level since July 1999.

Asia's fourth-largest economy imports nearly all of its energy needs.

But the oil price slump is not the only factor, with inflation stuck below the central Bank of Korea's target range of 2.5-3.5 per cent for almost three years.

Warnings about South Korea stumbling into a Japan-style deflationary trap have been increasing in recent months and Choi's remarks were seen as reflecting government hopes that the central bank will consider a further interest rate cut.

After two rate cuts last year, the Bank of Korea's benchmark rate is currently at a record-equalling low of 2.0 per cent - a level not seen since 2009-10 when Asia's fourth-largest economy was seeking to recover from the global financial crisis.

"I've been studying Japan's 'Lost Decade' case, as South Korea risks taking a similar step," Mr Choi said.

The central bank in January slashed its economic growth forecast for this year to 3.4 per cent from the previous 3.9 per cent, while it lowered its inflation outlook to 1.9 per cent from the 2.4 per cent previously stated.

Mr Choi said the government would maintain its expansionary fiscal policies to boost domestic consumption, citing uncertainties in Europe, Japan and China.

AFP