SEOUL: South Korea's annual inflation accelerated to an 11-month high in October, raising the hurdle to further monetary easing as the central bank showed it was wary about taking borrowing costs even lower amid rising household debt and external risks.
The consumer price index rose 0.9% in October from a year earlier, Statistics Korea data showed on Tuesday, driven by rising prices in the services sector. It was up from a 0.6% increase in September, and marked the fastest rise since a 1% gain in November last year.
Annual core inflation rose 2.3% from 2.1% in September, the highest since February this year.
The pick-up in inflation appeared to rule out the chance of another rate cut, at least in the short term.
Indeed, in a twice-yearly report that followed the data, South Korea's central bank promised to keep monetary policy easy, but stopped short of signalling additional rate cuts.
The central bank stressed it would act with other authorities to rein in household debt should that pose risks to financial stability.
The Bank of Korea (BoK) also said it is closely monitoring external risks such as changes in the US Federal Reserve's policy and economic sluggishness in China.
A finance ministry official said on Tuesday it expects inflation pressures to rise as the base effect from low global oil prices fades, reducing the room for further cuts to borrowing costs.
The central bank has lowered interest rates four times between August 2014 and June, taking the base rate to a record low 1.5%.
The easings look to have supported demand, as South Korea's economy grew at its fastest pace in more than five years in the third quarter.
Policymakers have been touting a firm rebound in private consumption thanks to government stimulus. The inflation data on Tuesday showed services rose 2.1% in October on-year, the highest since a 2.3% rise in February 2012.
"An improvement in domestic growth indicators is expected to cool down the talk about further BoK rate cuts and support the short-term KTB yields," said DBS economists in a note.
Other recent indicators like improving factory output for September have prompted some economists to revise their rate calls.
Tim Condon at ING said in a note the bar for further easing is high, suggesting interest rates will be on hold for the rest of the year.
Barclays said on Monday it has delayed its rate cut timing forecast from the fourth quarter of this year to the first quarter of 2016. - Reuters
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