South Korea's central bank left its base rate steady at 2.50 percent, as widely expected, and said its monetary policy would be aimed at keeping inflation within the bank's range and ensuring that the potential for growth is not eroded due to continued slow growth.
The Bank of Korea (BOK), which last cut its rate by 25 basis points in May, said it expected inflation to remain low, mainly due to the inflation-reducing effects of free childcare and downward stabilization of international agriculture prices.
Korea's headline inflation rate fell further to 0.7 percent in October from 0.8 percent the previous month due to lower prices for agricultural products and petroleum while core inflation, which excludes those components, was steady at 1.6 percent.
The BOK targets annual inflation of 2.5-3.5 percent and last month cut its inflation forecast to an average 1.2 percent this year and 2014 inflation to 2.5 percent.
Domestic demand in South Korea slumped temporarily but the BOK said exports "sustained their buoyancy" so the overall economy continued to grow in line with the trend.
Korea's Gross Domestic Product expanded by 1.1. percent in the third quarter from the second for annual growth 3.3 percent, up from 2.3 percent in the second and 1.5 percent in the first.
"The Committee expects that the domestic economy will maintain a negative output gap for the a considerable time going forward, although it forecasts that the gap will narrow," the BOK said.
The BOK's latest forecast call for 2.8 percent growth this year and 3.8 percent in 2014.
The global economy is expected to "sustain its modest recovery going forward," the BOK said, but added that changes in global financial markets due to the U.S. Federal Reserve's tapering of asset purchases and "continued uncertainties surrounding the US government's budget bill and the increase in the debt ceiling pose downside risks to growth."
Earlier this month the International Monetary Fund (IMF) said the South Korea should not withdraw its policy support to the economy too soon given the uncertain momentum of domestic demand and the country was on track to grow by 2.8 percent this year and 3.7 percent in 2014