South Korea's central bank left its base rate at 2.50 percent, as expected, and said it still "forecasts that inflation will gradually rise, although it will remain low for the time being."
The Bank of Korea (BOK), which cut its rate by 25 basis points in 2013 and is expected to raise rates later this year or next year to curb inflationary pressures, said it would closely monitor changes in domestic demand following the Sewol ferry accident and pay close attention to external risk factors, such as shifts in major countries monetary policies.
Korea's economy has shown signs of slowing with domestic demand affected by the impact of the accident in April when the Sewol ferry capsized, killing nearly 300 people, mostly teenagers.
"The Committee expects that the domestic economy will maintain a negative output gap for the time being going forward, although it forecasts that the gap will gradually narrow," the BOK said.
Korea's Gross Domestic Product expanded by 0.9 percent in the first quarter from the previous quarter for annual growth of 3.9 percent, up from 3.7 percent.
Headline inflation rose to 1.7 percent from 1.5 percent, mainly due to a lower decline in agricultural and petroleum product prices, while core inflation, which excludes agricultural and petroleum products, eased to 2.2 percent from 2.3 percent.
The central bank has forecast 2014 inflation of 2.3 percent, up from last year's 1.3 percent. The BOK targets inflation of 2.5 to 3.5 percent.