(Updates with economist comment in fourth paragraph.)
June 8 (Bloomberg) -- South Korea’s economy expanded in line with initial estimates in the first quarter, underpinning the case for the central bank to raise borrowing costs this week.
Gross domestic product grew 4.2 percent from a year earlier, unchanged from the earlier estimate, the Bank of Korea said in Seoul today. The economy expanded 1.3 percent in the three months through March from the previous quarter, less than the April estimate of a 1.4 percent gain.
The Bank of Korea will meet on June 10 to decide whether to raise interest rates for the third time this year to cool inflation that’s exceeded its 4 percent target ceiling every month this year. The central bank will also need to consider whether growth may slow as higher prices discourage consumers.
“Growth looks pretty solid and inflation is above the target, calling for an interest-rate hike,” said Chang Jae Chul, an economist at Citigroup Global Markets Inc. in Seoul. “But the central bank may hesitate again this week out of concern over downside risks.”
The won rose 0.3 percent to 1,079.15 per dollar as of 9:39 a.m. in Seoul, according to data compiled by Bloomberg. The benchmark Kospi index dropped 0.7 percent.
Governor Kim Choong Soo raised interest rates by 25 basis points in both January and March before unexpectedly keeping them unchanged last month. He said on May 18 that the Bank of Korea will continue to boost borrowing costs at its own pace and that the nation need to be wary of an inflation spiral.
Exports, which are equivalent to about half of economic output, climbed 23.5 percent last month from a year earlier, with daily average exports rising to record $2.18 billion in May from $2.09 billion in April, the economy ministry said June 1.
Consumer prices rose 4.1 percent last month from a year earlier after a 4.2 percent gain in April, a separate government report showed last week. Core prices, which exclude fuel and food prices, advanced 3.5 percent in May from a year earlier, the fastest gain since June 2009.
Goods exports rose 4.6 percent in the first quarter from the previous quarter, today’s report showed. Private consumption increased 0.4 percent and government spending rose 1.7 percent while facility investment dropped 1.1 percent and construction investment declined 6.7 percent.
--Editors: Ken McCallum, Stephanie Phang
To contact the reporters on this story: Eunkyung Seo in Seoul at email@example.com
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