By Yoo Choonsik
SEOUL, May 26 (Reuters) - South Koreans became more upbeat on the economy in May, according to a central bank survey, and although inflation expectations eased slightly, they remained at elevated levels, reinforcing the case for an interest rate increase next month.
The Bank of Korea surprised markets for the third time in five months this year when it failed to deliver an expected rate hike and although economists expect it to deliver one in June, there are new risks to those expectations due to Greece's debt woes.
'Our official forecast for the June meeting is a raise but we are reviewing our view given the (turmoil over) euro zone's debt problems,' said Lee Sang-jae, chief economist at Hyundai Securities.
The central bank said on Thursday its consumer sentiment index rose for the second consecutive month to 104 in May from 100 in April.
The median consumer inflation expectation rate for the next 12 months, compiled from the same survey, fell for the first time in six months to 3.9 percent in May from 4.0 percent in April, when it reached a 22-month high, it said in a statement.
The central bank did not elaborate on the factors behind the findings from its survey of 2,200 households in 56 cities nationwide, conducted from May 13-20, but the expected inflation rate is still just close to the upper end of its target.
Statistics agency data showed early this month actual annual inflation in April slowed more than expected to 4.2 percent from a 29-month high of 4.7 percent in March.
The Bank of Korea had raised the benchmark 7-day repurchase agreement rate by a total of 1 percentage point between July last year and March this year, but has held it steady at 3 percent for two months running.
Public outcry over high inflation and a stubbornly weak domestic demand saw President Lee Myung-bak's ruling party lose more heavily than expected in regional elections in April.
Lee, a former construction company CEO who rose to power three years ago with promises strong growth, sacked his finance minister and four other cabinet members this month after the polls.
Finance minister-designate Bahk Jae-wan told a parliamentary confirmation hearing session on Wednesday he would make stabilising inflation his top policy priority, although making no promise for any drastic change in policy.
The Organisation for Economic Co-operation and Development (OECD) recommended in its global economic outlook report on Wednesday South Korea needs to lift interest rates further and let the won rise to fight inflation.
(Editing by David Chance) Keywords: KOREA ECONOMY/INFLATION (choonsik.yoo@thomsonreuters.com)(+822 3704 5580)(Reuters Messaging: choonsik.yoo.thomsonreuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
SEOUL, May 26 (Reuters) - South Koreans became more upbeat on the economy in May, according to a central bank survey, and although inflation expectations eased slightly, they remained at elevated levels, reinforcing the case for an interest rate increase next month.
The Bank of Korea surprised markets for the third time in five months this year when it failed to deliver an expected rate hike and although economists expect it to deliver one in June, there are new risks to those expectations due to Greece's debt woes.
'Our official forecast for the June meeting is a raise but we are reviewing our view given the (turmoil over) euro zone's debt problems,' said Lee Sang-jae, chief economist at Hyundai Securities.
The central bank said on Thursday its consumer sentiment index rose for the second consecutive month to 104 in May from 100 in April.
The median consumer inflation expectation rate for the next 12 months, compiled from the same survey, fell for the first time in six months to 3.9 percent in May from 4.0 percent in April, when it reached a 22-month high, it said in a statement.
The central bank did not elaborate on the factors behind the findings from its survey of 2,200 households in 56 cities nationwide, conducted from May 13-20, but the expected inflation rate is still just close to the upper end of its target.
Statistics agency data showed early this month actual annual inflation in April slowed more than expected to 4.2 percent from a 29-month high of 4.7 percent in March.
The Bank of Korea had raised the benchmark 7-day repurchase agreement rate by a total of 1 percentage point between July last year and March this year, but has held it steady at 3 percent for two months running.
Public outcry over high inflation and a stubbornly weak domestic demand saw President Lee Myung-bak's ruling party lose more heavily than expected in regional elections in April.
Lee, a former construction company CEO who rose to power three years ago with promises strong growth, sacked his finance minister and four other cabinet members this month after the polls.
Finance minister-designate Bahk Jae-wan told a parliamentary confirmation hearing session on Wednesday he would make stabilising inflation his top policy priority, although making no promise for any drastic change in policy.
The Organisation for Economic Co-operation and Development (OECD) recommended in its global economic outlook report on Wednesday South Korea needs to lift interest rates further and let the won rise to fight inflation.
(Editing by David Chance) Keywords: KOREA ECONOMY/INFLATION (choonsik.yoo@thomsonreuters.com)(+822 3704 5580)(Reuters Messaging: choonsik.yoo.thomsonreuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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