S Korea central bank sees little impact on economy from low inflation

[SEOUL] South Korea's central bank said on Tuesday that the country's continued low inflation stems mainly from good crop harvests and stable global commodity prices, so it is only having a limited negative impact on the economy so far.

While the economy still has a "negative output gap" - meaning it is not performing at full capacity - "soft demand has had some effect on bringing down inflation but it is not a situation in which low inflation itself has been harming production," the Bank of Korea (BOK) said in a report to parliament.

The report was produced in time for the BOK's parliamentary audit by lawmakers, which takes place on Tuesday.

The central bank added that low inflation was not widespread among production or service sectors although it said it is watching to see if weak price pressures might pull down rates of expected inflation, which currently are slightly below 3 per cent.

South Korea's annual inflation has stood at 1-percent levels since July 2012, far below the central bank's target band of 2.5 to 3.5 per cent. In September, inflation slowed to a 7-month low at 1.1 per cent.

Also in the report to parliament, the BOK reiterated its views that the economy is having a steady recovery, with export growth satisfactory and domestic consumption improving. However, it sees risks from geopolitical tensions and from a possible delay in seeing an improvement in corporate sentiment about investing.

The BOK currently forecasts that Asia's fourth-largest economy will grow by 3.8 per cent this year and 4.0 per cent in 2015. Its forecasts will be revised on Oct 15 when it next reviews the monetary policy rate. - Reuters