The Bank of Korea kept its inflation rate projection at 1.six percent, but lowered its growth forecast for the local economy to 2.nine percent from April's three percent.
" We expect economic growth to continue at the level of its potential growth rate. But there is growing uncertainty over global trade conflict and the pace of monetary policy normalization by major economies."
The BOK Chief said Korea's exports remain robust and that growing consumption will offset slowing investment in the country.
But the Bank said growing trade uncertainties and the escalating trade friction between the U.S. and China poses a risk to the South Korean economy and the financial market.
With inflation also below its two percent target, the BOK left its key benchmark rate unchanged at 1.five percent.
South Korea's consumer price index gained one.five percent in June, the same as the previous month, due to fall in agricultural goods prices.
Household debt concerns and the sluggish domestic labor market also led the Bank to hold its key rate.
Between January and June, a monthly average of 142-thousand new jobs were added, marking the slowest growth since the 2008 global financial crisis.
"Externally, growing trade protectionism is a downside risk to Korea. Domestically, slowing construction and facility investment, poor job data, and low demand side inflation, led to the Bank's decision to hold rates again."
July's monetary decision leaves the U.S. interest rate zero.five percent higher than that of Korea.
"But with the Fed expected to raise rates two more times this year, the BOK didn't rule out the possibility of a rate hike in the second half of this year, adding that it will closely monitor global market conditions and how the U.S.-China trade war affects the Korean economy.
Kim Hyesung, Arirang News."