South Korea inflation cools more than expected as rate cut talk grows
S.Korea Sept inflation +1.6% y/y (vs +1.9% forecast)
Falls below BOK's target for first time since early 2021
Firms rate cut case ahead of policy meeting on Oct. 11
Adds comments from policymakers, economist; paragraphs 5-7
By Jihoon Lee
SEOUL, Oct 2 (Reuters) -South Korea's consumer inflation cooled more than forecast in September and below the central bank's target for the first time since early 2021, amid growing expectations of an imminent policy easing.
The consumer price index (CPI) rose 1.6% in September from a year earlier, after a rise of 1.9% in August, data from Statistics Korea showed on Wednesday.
It was weaker than a median 1.9% increase tipped in a Reuters poll of economists and marked the weakest annual increase since February 2021.
The reading was below the Bank of Korea's (BOK) medium-term target of 2% and comes amid growing talk among policymakers and market participants about an imminent interest rate cut with the next policy meeting scheduled for Oct. 11.
South Korea's policy-sensitive three-year treasury bond yield KR3YT=RR fell on Wednesday by 3.4 basis points to 2.777%, the lowest level since April 2022.
Finance Minister Choi Sang-mok and BOK Deputy Governor Kim Woong both said the price stabilisation trend was continuing.
"The data once again backed the case for rate cuts," said Ahn Jae-kyun, a fixed-income analyst at Shinhan Securities, who expects the BOK to lower interest rates next week.
"There is a precedence of the BOK lowering interest rates after seeing inflation coming down to the 1% range from 2%, but what is different this time is household debt and the central bank's stance on it," Ahn said.
The BOK at its last meeting in August held interest rates at a 16-year high of 3.50% despite slowing inflation and domestic demand, as board members were concerned about financial stability risks stemming from a hot housing market.
CPI rose 0.1% on a monthly basis, also slower than 0.4% in the previous month and 0.3% expected by economists. Prices of petroleum products fell 4.1% and private services declined 0.4%, offsetting gains in agricultural products and public utilities.
Core CPI, which excludes volatile food and energy items, rose 2.0% year-on-year, slower than the 2.1% rise the previous month and the weakest since November 2021.
Reporting by Jihoon Lee; Editing by Tom Hogue and Sam Holmes
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