South Korea's central bank held its base rate steady at 2.75 percent, as expected, and said it would continue to lower inflation expectations and ensure the country's growth potential is not eroded.
The Bank of Korea, which has cut its rate twice this year by a total of 50 basis points to counter weak demand for its exports, said the country's economic growth was still weak with exports improving but domestic demand still sluggish.
"Going forward, the Committee anticipates that the negative output gap in the domestic economy will persist for a considerable time, due mostly to the prolongation of the euro area fiscal crises and to the delay in the recovery of world economic growth," the bank said after a meeting of its monetary policy committee.
South Korea's Gross Domestic Product expanded by only 0.1 percent in the third quarter from the second for an annual rate of 1.5 percent, down from the second quarter's 2.3 percent expansion.
"The Committee expects the global economy to exhibit a modest recovery going forward but judges the downside risks to growth to be large, owning chiefly to the euro area fiscal crises and to the fiscal consolidation issue in the US,"the bank added.
The central bank forecasts growth of 2.4 percent this year, down from 2011's 3.6 percent, and 3.2 percent in 2013.
South Korea's inflation rate fell to 1.6 percent in November from Octobers's 2.1 percent, mainly due to lower farm and petroleum prices.
"The committee forecasts that inflation will remain low for for the time being, owing primarily to the easing of demand-side pressures," it said.
The central bank forecasts average 2.7 percent inflation in 2013 and targets inflation of 2.5-3.5 percent for the 2013-2015 period.