The Bank of Korea has used a new way of calculating the nation's output gap and results showed a smaller margin between the economy's actual growth and potential growth compared to the previous method.
The new method, introduced in the central bank's report on Friday, is aimed at giving a more accurate picture on the economy and helping policymakers draw up plans to promote greater economic activities while preempting asset bubbles.
It reveals the Korean economy is growing closer to its maximum possible growth rate at which the economy can grow without triggering inflation and financial market instability.
And with the new data showing a potential closing of gap between actual growth, experts point to a possible rate hike later this year.
"Output gap is an indicator for inflation. There was a wide negative output gap in the past several years but this is expected to be reversed by the end of this year, which is expected to lead the central bank to tighten its monetary policies."
The new central bank governor Lee Ju-yeol also said in his policy debut as the top monetary policymaker last month, that a debate on a potential rate increase should begin, if the negative output gap closes and upside risks to inflation mount.
Hwang Ji-hye, Arirang News.