South Korea's central bank said Monday that the local economy is likely to surpass its long-term growth trend this year, raising speculation that the bank may upgrade its growth outlook.
The Bank of Korea (BOK) earlier forecast Asia's fourth-largest economy to grow 4.5 percent this year while the government is seeking to target a 5 percent expansion.
"The economic expansion will likely hover above the trend growth rate calculated by the central bank," said Lee Sang-woo, director-general of the BOK's research department.
BOK Gov. Kim Choong-soo said last week that a potential upgrade in growth outlook for the U.S. economy, possibly a 3 percent expansion, may prompt South Korea to revise up its growth projection. Analysts forecast that in light of the governor's remarks, the bank may revise up its growth projection to near 5 percent.
"South Korea's actual economic growth exceeded potential output in the second half of last year and the gross domestic product (GDP) gap is expected to gradually widen, pointing to growing inflationary pressure," Lee added.
The GDP gap refers to the difference between actual GDP and potential GDP, or the maximum possible growth rate at which an economy can grow without triggering inflation.
The BOK has not unveiled data on potential GDP or GDP gap on concerns that they might cause unintended impact on the markets.
Mounting inflation risks prompted the government to release a flurry of anti-inflation measures including a freeze in public utility charges on Jan. 13. The BOK raised the key rate by a quarter percentage point to 2.75 percent in January in a bid to curb inflation.
Gov. Kim said last week that South Korea is facing significantly difficult situations in taming inflation as the economic recovery and rising raw material prices are exerting upward pressure on consumer prices.
The BOK will unveil its revision on growth and inflation in April, raising prospects that the bank will also upgrade its outlook for inflation.