South Korea's export growth lost some of its momentum in March while inflation unexpectedly slowed to a 5-month low, reinforcing expectations interest rates will stay at a record low for some time. Bond prices, stocks and the currency all rose as a series of data released on Thursday indicated Asia's fourth-largest economy was continuing to recover but not strong enough to prompt the central bank to tighten policy until the second half of the year.
Analysts said exports would probably suffer slower growth ahead as many developed economies are yet on a sustainable growth path while authorities in some others, notably China, are unwinding some of the stimulus put in place during the crisis. "All the three markets rose today and each market had sufficient factors to cheer," said Park Sang-hyun, economist at HI Investment & Securities. "Exports are holding up on the surface but there remains considerable amount of uncertainties for the world economy over the next several months."
Exports grew 35.1 percent from a year earlier, above the market's 32.9 percent growth forecast, but investment bank ING estimated monthly growth moderated to 4.4 percent after seasonal adjustments from 10.9 percent in February. South Korea does not release seasonally adjusted export figures but said the average exports value per working day fell to $1.57 billion in March from a 17-month high of $1.62 billion in February, although it still stayed far above 2009 levels.
Annual consumer inflation in March slowed to 2.3 percent, the lowest in five months, from 2.7 percent in February. It was below the lower end of the market's expectations. Seoul's main stock index rose 1.6 percent, the won gained 0.4 percent and the benchmark 5-year treasury bond yield fell 5 basis points.
The HSBC/Markit purchasing managers' index on South Korea's manufacturing sector fell to a seasonally adjusted 55.62 in March from a 2-year high of 58.17 in February. A reading above 50 means activity is expanding. Housing prices across the country rose for a 12th consecutive month in March but the monthly gain slowed to 0.2 percent from 0.3 percent in February, private data showed.
The country's new central bank governor, widely seen in close step with the government's stance of keeping monetary policy loose for the time being, emphasised job creation as well as stable inflation as key tasks in his inaugural speech. Kim Choong-soo, who has not worked at the central bank before, has emphasised since nominated earlier this month the importance of co-operation with the government, convincing bond traders to push back their expectations for an early interest rate increase. The Bank of Korea has kept its benchmark 7-day repurchase agreement rate at record-low 2.0 percent for the past 13 consecutive months after six cuts totalling 325 basis points. It next reviews the rate on April 9.
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