SEOUL: South Korea's central bank Thursday kept the key interest rate unchanged for the third straight month, as gloomier world economic prospects outweighed concerns about rising inflation.
The Bank of Korea, in a widely predicted decision, held the benchmark seven-day repo rate steady at 3.25 percent for September.
Experts had said fears of a possible US double-dip recession and Europe's sovereign debt woes would prompt a rate freeze, even though inflation hit a three-year high of 5.3 percent in August.
The central bank said uncertainty about the growth path of the export-dominated economy has intensified due to external risk factors.
While emerging-market economies had performed favourably, "the recoveries in major advanced economies including the US have exhibited signs of further weakening," it said in a statement.
The bank also said it expects the rising trend of consumer prices to persist because of the higher cost of oil and demand-side pressure. But it said it expects the pace of inflation to slow "somewhat" as food prices fall.
South Korea's industrial production grew 3.8 percent year-on-year in July, from a 6.5 percent rise in June.
The final second-quarter GDP growth figure released this week showed 0.9 percent expansion compared to January-March, decelerating from 1.3 percent in the first quarter.
Moody's Analytics said monetary tightening was unlikely this year until the economic outlook became clearer. "This is a prudent course because the balance of risks has tilted to the downside," it said in a commentary.
Weakness in the United States and Europe would damage Korea's exports as would China's tightening, it said.
In addition, "the bump in processed fuel exports to Japan will fade as Japan recovers and its generation capacity is restored."
However, Moody's Analytics said the central bank has some flexibility on inflation thanks to the peaking of global commodity prices.
"Food inflation, which spiked partly because of floods in Seoul in July, will also moderate," it forecast.
Copyright AFP (Agence France-Presse), 2011
Comments
Comments are closed for this article.