SEOUL, South Korea (AP) -- South Korea's central bank cut its economic growth forecast Thursday, citing a severe drought and the spread of Middle East respiratory syndrome.
Bank of Korea governor Lee Ju-yeol said that South Korea's economy will likely expand 2.8 percent this year, down from 3.1 percent forecast in April. The central bank kept its key interest rate at a record low of 1.5 percent, following a quarter of a percentage rate cut last month.
The central bank's forecast cut follows a similar move by the finance ministry last month. The ministry blamed the MERS outbreak for sapping consumption and tourism. It pledged to spend 12 trillion won ($10.6 billion) in a stimulus package to aid growth for the rest of this year.
Hundreds of thousands of foreign visitors from China cancelled visits to South Korea after the outbreak of the disease in May. The ministry said the number of foreign visitors plunged 40 percent during the first four weeks in June, compared with a year earlier. Chinese tourists are a lifeline for many businesses in the country's cosmetics, hotel, transport and restaurant industries.
Lee said a recovery in the current quarter depends on whether foreign tourism bounces back from the MERS outbreak. Meanwhile domestic consumption is expected to recover as the MERS outbreak is contained, he said.