S.Korea freezes key interest rate for fourth month

By AFP

July 15, 2010 Updated Jun 14, 2009 at 9:42 PM CDT

South Korea's central bank has frozen its key interest rate at 2 percent for the fourth straight month, saying there are indications the economic downturn is moderating.

At its monthly policy meeting, the Bank of Korea (BOK) left the benchmark seven-day repo rate unchanged at a record low.

The bank had made six consecutive rate cuts totalling 3.25 percentage points between October and February to bolster the export-dominated economy.

"The slump in domestic demand has moderated and production activities have improved," the bank said in a statement.

"The downside risk to economic growth, however, is thought to persist because of a rise in international raw material prices and the slowdown in major advanced countries."

Inflation has been moderating due to easing demand stemming from a slowing economy and gains in the won against the dollar, it said.

The central bank is likely to leave the key rate unchanged for the rest of the year despite rising concerns over worldwide inflation, said Daishin Economic Research Institute economist Kim Yoon-Gi.

Kim told Dow Jones Newswires that "as a rise in raw material prices will be temporary and the global economy won't recover that fast, the BOK won't touch its base rate until the year-end."

South Korea narrowly avoided falling into recession in the January-March quarter, when the economy grew 0.1 percent quarter-on-quarter following a 5.1 percent contraction from October to December.

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