2 big reasons why Korea's unemployment rate edged up to 3.5%

Versus December 2012's 3%.

According to DBS,the Bank of Korea held rates steady yesterday, amid divided market opinions as to whether a rate cut is needed." As we have argued, the softness in economic data in Jan-Feb was distorted by the Lunar New Year, as well as the unusually cold weather this winter," it said.

The 0.5ppt rise in unemployment rate from 3.0% in Dec12 to 3.5% in Feb13 was an example. This was because 1) labour force growth surged in Jan-Feb as more people entered the job market in the start of the year, and 2) employment growth slowed as the number of temporary workers declined during the LNY holiday.

Here's more from DBS:

Meanwhile, the impact of cold weather was seen in the decline of January retail sales (due to reduced outdoor activity) and the strong rise in electricity consumption on the other hand.

Indeed, the BOK didn’t downgrade its assessment of economic conditions in spite of the recent data weakness. The BOK said yesterday that retail sales and corporate investment have improved in February, and maintained the view that GDP growth will accelerate on the QoQ basis in 1Q13.

The central bank also added in yesterday’s statement that inflation will rise above its current low level.

Market expectations for a rate cut would stay for now, in part due to the anticipation of stimulus measures to be taken by the new government to revive growth and create jobs.

That said, economic data remain key to gauging the policy direction. A likely rebound in growth data in the coming month would reduce the pressures facing policymakers to prepare stimulus, while a rise in inflation numbers will also make it difficult to justify policy easing.

We maintain the view that the rate cutting cycle is over.