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UPDATE 1-S.Korea Sept inflation, PMI boost rate cut expectations

* Sept CPI +2.0 pct y/y (+2.0 pct forecast, +1.2 pct in Aug

* Sept HSBC/Markit PMI at lowest since early 2009

* Case builds for Bank of Korea rate cut at Oct. 11 meeting

(Updates with more data, economist's comment, markets)

By Se Young Lee and Choonsik Yoo

SEOUL, Oct 2 (Reuters) - South Korean inflation quickened in September but was still well below the central bank's target while the manufacturing sector shrank by the most since early 2009, adding to the case for an interest rate cut next week.

Annual inflation picked up to 2.0 percent in September from a 12-year low of 1.2 percent in August on a surge in food prices after heavy rainfall, data showed on Tuesday, but was far shy of the central bank's 3 percent target.

An HSBC/Markit survey showed the purchasing managers' index (PMI) of South Korea's manufacturing sector fell to a seasonally adjusted 45.71 in September from 47.50 in August, touching its lowest since February 2009.

Economists said these figures, along with data out on Monday showing exports fell for a third consecutive month on an annual basis, reinforced the claim for a rate cut.

"If July's rate cut was based on economic fundamentals, the Bank of Korea needs to ease further because the conditions remain the same," said Kim Jong-su, economist at NH Investment & Securities, adding that it should have cut in September.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Details of CPI, PMI data Graphics (Rates) (PMI) Recent stories on South Korean economy <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ BOK MONETARY MEETING OCT. 11

Market reaction was muted with the latest data matching expectations and many investors still away after the Chuseok thanksgiving holidays that officially ended on Monday.

The Bank of Korea trimmed its policy rate by 25 basis points to 3.0 percent in July in a surprise move, and has since kept it unchanged pending stimulus measures not only from the government but from the major economies.

Market rates show investors expect the Bank of Korea to lower the policy rate again at its next meeting on Oct. 11, when it is also widely expected to downgrade its 2012 economic growth forecast for the third time this year.

Indicators have increasingly shown that since the July policy meeting, Asia's fourth-largest economy has lost momentum more rapidly than expected as global demand slumped in the shadow of Europe's protracted debt crisis.

The HSBC/Markit survey marked the fourth consecutive month that the index was below the 50-level separating expansion from contraction in manufacturing activity, underscoring the extent of the current economic slump.

South Korea's quarterly economic growth dipped to a seasonally adjusted 0.3 percent in the April-June period from 0.9 percent in the first quarter, and Kim at NH said growth in the third quarter was likely at a similar pace to the second quarter.

(Editing by Eric Meijer)

((choonsik.yoo@thomsonreuters.com)(+822 3704 5580)(Reuters Messaging: choonsik.yoo.thomsonreuters.com@reuters.net))

Keywords: KOREA ECONOMY/INFLATION