SEOUL, May 16 (Reuters) - South Korea's top state-run economic think-tank on Sunday raised this year's economic growth forecast for the second time in six months and urged the central bank to start normalising its low interest rate policy.
The Korea Development Institute (KDI) said the country's economy would grow 5.9 percent this year, which would be the fastest pace in eight years and above the central bank's own upgraded growth forecast of 5.2 percent.
KDI last raised its 2010 growth forecast last November to 5.5 percent from 4.2 percent. Asia's fourth-largest economy expanded by just 0.2 percent in 2009 as the global economic downturn suppressed activity.
"In monetary policy, (the central bank) needs to promote normalisation of the low-interest rate policy stance in consideration of the changing environment such as a possible rise in consumer price (growth)," it said in a report.
KDI said inflation in 2010 would be 3 percent, higher than its previous forecast of 2.7 percent.
As the most influential economic institute in South Korea, the government takes its forecasts into account when setting policy.
The Bank of Korea has kept its interest rate at a record low of 2 percent for the past 15 months, but it signalled on Wednesday it was preparing for a rate rise with upbeat comments on the economy and inflation following a policy review. [ID:nTOE64B017]
Analysts estimated the rate rise will occur in the next quarter.
The Finance Ministry, which has forecast GDP will rise this year by 5 percent, has argued it is too early to raise interest rates.
The Bank of Korea slashed its benchmark 7-day repurchase
agreement rate
With Asia leading the world in recovering from the global downturn, several regional central banks, including those in Australia, Malaysia and India, have started raising interest rates from the low levels set during the crisis.
Following are details of the KDI's revised economic forecasts (percent change over a year earlier unless stated):
2010 ^2010 2009
revised previous actual Gross domestic product 5.9 5.5 0.2 Private consumption 4.7 4.9 0.2 Capital investment 17.6 17.1 -9.1 Current account ($ bln) 11.4 16.2 42.7 *Exports 19.0 13.7 -13.7 *Imports 29.2 22.2 -25.7 Consumer price index 3.0 2.7 2.8 Jobless rate (percent) 3.7 3.4 3.6
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Past GDP growth (percent change over a year earlier): ~2008 2.3 2007 5.1 2006 5.2 2005 4.0 2004 4.6 ^ released on Nov. 22, 2009 * on a balance of payment basis ~ revised provisional (Reporting by Yoo Choonsik; Editing by Neil Fullick)