The Bank of Korea's monetary policy board on Thursday decided to hold the nation's benchmark interest rate unchanged at 2.50 percent - in line with expectations.
The BoK had trimmed rates by 25 basis points in May, from 2.75 percent to 2.50 percent after six months of holding steady.
The central bank also expects CPI to remain low for the time being, and the board members believe that downside risks remain for the global economy.
"The committee considers the moderate economic recovery in the U.S. to have continued but economic activities in the euro area to have remained sluggish, while emerging market countries such as China have shown slightly lower economic growth than initially anticipated," the bank said. "The committee expects the global economy to sustain its modest recovery going forward, but judges that the uncertainties related for instance to the possibility of an earlier-than-expected tapering off of U.S. quantitative easing policy and to the implementations of fiscal consolidation in major countries remain as downside risks to growth."
The central bank still has room to maneuver, especially since inflation dropped to a 14-year low of 1 percent in May - marking the seventh straight month that CPI has remained under 2 percent.
Inflation remained beneath the central bank's target range of 1.5 to 3.5 percent, which it had lowered this year from 2 to 4 percent in 2012.
"The committee forecasts that inflation will remain low for the time being, provided there are no occurrences of exceptional factors on the supply side such as fluctuations in the prices of international oil and agricultural products," the bank said. "As for housing prices, those in Seoul and its surrounding areas remained generally steady, and those in the rest of the country continued their slight uptrend."
The central bank was able to hold rates in response to some improving economic data.
South Korea's gross domestic product expanded a seasonally adjusted 0.8 percent in the first quarter of 2013 compared to the previous three months.
That was down slightly from April's preliminary reading for an increase of 0.9 percent on quarter - although it was still up from the 0.3 percent gain in the fourth quarter.
On a yearly basis, GDP was unrevised - up 1.5 percent for the third straight quarter.
In Korea, consumption and facilities investment have declined but the Committee appraises economic growth to be continuing, albeit weakly, as exports have improved and construction investment has increased to a great extent. On the employment front, the number of persons employed has increased, centering around the 50-and-above age group and the service sector.
South Korea's trade surplus rose to $6.03 billion in May - its highest level in nearly three years as increased shipments of smart phones as well as strong demand from China and the U.S. countered negative impacts from a weak Japanese yen.
Exports increased 3.2 percent on year in May to $48.37 billion - beating forecasts for a 0.9 percent decline after a 0.4 percent gain in April.
The improvement suggests that South Korea is withstanding pressure from a weak yen, which has fallen by almost 20 percent compared to the average level in 2012.
"Looking ahead, the committee, while closely monitoring the trends of changes in external risk factors and the effects of the previous month's base rate cut and the economic policies of the government, including the supplementary budget, will conduct monetary policy so as to keep consumer price inflation within the inflation target range over a medium-term horizon while ensuring that the growth potential is not eroded due to the continuation of slow growth," the bank said.
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