The Bank of Korea's monetary policy board on Friday decided to keep the nation's benchmark interest rate unchanged at the record low 1.25 percent for the third straight month.
That followed June's surprise rate cut by 25 basis points from 1.50 percent after 10 straight meetings without a move.
"The board forecasts that the global economy will maintain its recovery going forward, albeit at a moderate pace, while being affected by factors including changes in the monetary policies of major countries such as the US, the uncertainties related to Britain's exit from the European Union, and economic conditions in emerging market countries," the bank said.
Extremely low inflation allowed the bank the flexibility to hold fire as consumer prices were up just 0.4 percent on year in August – touching a 16-month low and slowing from 0.7 percent in July.
Core consumer prices fell 0.3 percent on month and gained 1.1 percent on year after adding 0.1 percent on month and 1.6 percent on year a month prior.
"The board forecasts that consumer price inflation will remain at a low level for the time being, and then gradually rise due to the disappearance of the effect of the temporary electricity fee reduction and the weakening influence of the low oil prices," the bank said.
Much of the other data was cautiously optimistic as exports expanded for the first time in 20 months in August, climbing 2.6 percent on year to $40.13 billion after tumbling 10.3 percent in July.
And South Korea's gross domestic product was upwardly revised to 3.3 percent on year in the second quarter of 2016.
That's up from the July 25 preliminary reading for 3.2 percent, and it was up from 2.8 percent in the first quarter.
On a seasonally adjusted annualized basis, GDP was bumped up to 0.8 percent from the initial read of 0.7 percent in July.
GDP expanded 0.5 percent on quarter in Q1.
"The board forecasts that the domestic economy will sustain its trend of modest growth going forward, owing chiefly to expansionary macroeconomic policies, but in view of economic conditions domestically and abroad judges the uncertainties surrounding the growth path to be high," the bank said.
Also, industrial production in South Korea advanced 1.2 percent on month in July.
That beat forecasts for an increase of 1.0 percent following the downwardly revised 0.4 percent decline in June (originally -0.2 percent).
On a yearly basis, industrial production picked up 1.6 percent – again topping expectations for 0.8 percent, which would have been unchanged from the previous month.
"The board will conduct monetary policy so as to ensure that the recovery of economic growth continues and consumer price inflation approaches the target level over a medium-term horizon, while paying attention to financial stability," the bank said.
by RTT Staff Writer
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