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South Korea's first quarter GDP shrinks, adding pressure for rate cut

Key Points
  • South Korea's economy shrank more than initially estimated in the first quarter while core inflation slowed to a near 20-year low in May, data showed on Tuesday, adding to the case for the central bank to cut interest rates.
  • The BOK's monetary policy committee held the benchmark interest rate unchanged last Friday but a split vote in the decision was widely interpreted by investors as a central bank signal of a rate cut in the near term.
A South Korea flag is displayed against skyscrapers and businesses in Gangnam-gu, Seoul.
Ann Hermes | Christian Science Monitor | Getty Images

South Korea's economy shrank more than initially estimated in the first quarter while core inflation slowed to a near 20-year low in May, data showed on Tuesday, adding to the case for the central bank to cut interest rates.

The country's gross domestic product contracted by a seasonally adjusted 0.4% in the January-March period from the previous quarter, the Bank of Korea's revised data showed, a notch faster than a 0.3% decline estimated earlier.

Statistics Korea said separately core consumer price index, which excludes volatile food and energy prices, rose 0.6% in May from a year earlier, slower than the 0.7% gain in April and the weakest since a 0.1% rise set in December 1999.

"Treasury bond yields have already gone below the policy rate and today's data, along with the market interest rates, will push the central bank for a rate cut," said Oh Chang-sob, fixed-income strategist at Korea Investment & Securities.

Both sets of data were released before financial markets commenced trading.

The BOK's monetary policy committee held the benchmark interest rate unchanged last Friday but a split vote in the decision was widely interpreted by investors as a central bank signal of a rate cut in the near term.

It next reviews its policy on July 18, when the central bank is also due to release a revised economic growth forecast for this year. In April, the BOK cut its 2019 economic growth forecast to 2.5% from 2.6% seen previously.

The BOK said in a statement on Tuesday construction investment and exports fared worse than initially estimated in late April, while government spending growth was revised slightly up from the estimate.

From a year earlier, Asia's fourth-largest economy grew a revised 1.7% during the first quarter, slower than a 1.8% rise estimated earlier.