The preliminary reading in October showed that South Korea's gross domestic product, which measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy, was up 0.2 percent in the third quarter of this year compared to that in the second quarter. The economy expanded 0.3 percent in the second quarter while it rose 0.9 percent in the first quarter.
This report comes after the BoK announced last month its decision to keep the policy rate at 2.75 percent. Market participants feel that additional stimulus measures are urgently needed to boost the country's weakening economy.
The central bank has already noted that the growth in the U.S. has lost momentum and that the euro zone economy is contracting, with weaker exports to the major economies in turn bringing a slower growth in the emerging Asian economy this year. At the same time, the BoK is expecting the economic slowdown to ease and the country’s economy to improve moderately.
In October, the BoK cut the policy rate by 25 basis points to 2.75 percent. Market players sense that the monetary policy should be loosened again sooner rather than later though the BoK has shown a preference for moving slowly. There should be room for further policy loosening since South Korea posted an inflation rate of 2 percent in September, which is below the central bank's 3.0 percent target limit.
Meanwhile, according to the HSBC Purchasing Managers’ Index (PMI) released earlier this week, South Korea’s manufacturing activity continued to contract in November but improved to a five-month high. The reading of the PMI, a measure of the nationwide manufacturing activity, rose to 48.2 in November compared to 47.4 in October.
Investors sense that the euro zone crisis is likely to escalate further. They also sense that the global growth will remain subdued in 2013, led by the prolonged slowdown in the euro zone. So there is an increasing possibility that the BoK will have to further cut the interest rate this year.