The central bank is likely to lower its 2012 economic forecasts for Asia's fourth-largest economy in a report next month, Bank of Korea Governor Kim Choong-soo told Reuters in an interview late on Monday. He also said massive capital flight from Korea was unlikely. "This is a very pessimistic scenario," Bank of Korea Governor Kim Choong-soo said, when asked whether the euro zone's debt crisis would spark heavy capital flight from Korea. "I don't think there is a likelihood that we will face such a situation." Kim said short-term external debt, while still large, was a lot more balanced than a decade ago, adding that the country's $311 billion foreign reserves were adequate and that recent currency swaps with Japan and China provided additional insurance. "For the moment, short-term debt is not an issue." "We are not in a situation to need any further currency swaps to stabilise the capital market for the moment," he said, when asked about whether Korea would seek a swap line with the US Federal Reserve for dollar funding. Although the country's short-term overseas debt has fallen below 50 percent of foreign reserves from nearly 80 percent at the time of the 2008 financial crisis, it is still more than double the levels at regional peers. The currency has tumbled around 9 percent since August. The authorities have sought to discourage banks from short term foreign borrowing since 2008, when the won currency fell p 30 percent in a single quarter. They have also attempted to stem rising household debts. South Korea recently signed deals with China and Japan to get up to $126 billion in dollars, yuan and yen in exchange for won, so that 90 percent of external debt falling due over the next one year is covered. Kim said that while South Korean regulators could further tighten rules on capital flows, as other emerging economies such as Brazil have done, it was not his core scenario. "There is room to change the amount of levies imposed on the flows of non-core liabilities," he said. Nor were pre-emptive controls on short-term bank borrowings required, he said. "Paying too much attention to the tail risk means you are not doing anything. You have to do some business. I don't see that is desirable." HOUSEHOLD DEBT At 80 percent of GDP, Korean household debt remains among the highest in the OECD group of rich industrial nations and stands at 1.6 times disposable income. "Household debt is one of the more important concerns. But I don't think it is appropriate to discuss the household debt matter in a context of a crisis," said Kim. Kim said that South Korea's central bank is likely to downgrade its 2012 growth estimate in December, but added it was too early to make an assessment of inflation given uncertainties over the global economic and demand outlook. Inflation, measured by consumer prices, has topped the central bank's target range of 2-4 percent for most of this year, although it dipped to an annual 3.6 percent in October. "Inflation expectations of the public still remain high at around 4 percent but the major focus of monetary policy is to lower long-term expectations," Kim said. "And in the medium to long term perspective, expectations are likely to be lower." The Bank of Korea raised rates by a total of 125 basis points in five steps until June this year. That followed interest rate reductions of 325 basis points made during the 2008-2009 crisis. The policy rate, the 7-day repurchase rate, is now at 3.25 percent. Kim refused to comment on whether the policy rate could be deemed "neutral" in the current environment. "People estimate the neutral rate without paying due consideration to the changes in the external environment," he said.