Korea's GDP forecast inched higher to 2.8%

Inflation also revised to 1.7%.

According to DBS, the Bank of Korea kept rates unchanged yesterday, and upgraded economic forecasts. The GDP growth forecasts for 2013-2014 have been lifted slightly to 2.8% (from 2.6%) and 4.0% (from 3.8%) respectively. Meanwhile, inflation estimate has been revised down to 1.7% for this year (vs. 2.3% previously), and revised up to 2.9% for next year (vs. 2.8%).

Here's more:

The BOK governor has indicated at the previous meetings that the central bank will review economic forecasts to reflect the impact of the government’s stimulus package announced in 2Q.

The forecast upgrade reflects policymakers’ confidence that the fiscal stimulus measures will work and the outlook for domestic demand will improve from 2H13. This also implies that chances of additional monetary easing in the next 1-2 months will be slim.

Our base case forecast is for the BOK to hold rates steady through the rest of this year, but we don’t completely rule outthe possibility of one more rate cut in 4Q. Global economic uncertainties have increased due to the talk of Fed tapering and the risk of growth slowdown in China.

A weaker-than-expected export outlook could potentially offset the positive impact of stimulus measures on domestic consumption and investment. The possibility of seeing downside disappointment to economic data in the coming months appears higher than the possibility of upside surprises.

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