Central Bank Holds Key Rate Steady on Fears Over Inflation

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Central Bank Holds Key Rate Steady on Fears Over Inflation

The Bank of Korea's Monetary Policy Committee said Friday that it will keep the overnight call rate at 5 percent due to concerns about inflation. The overnight call rate is the benchmark interest rate that commercial banks charge each other for overnight loans.

The governor of the central bank, Chon Chol-hwan, pointed out that consumer prices rose by more than 4 percent in the first quarter over the January-March period of last year. Mr. Chon said that the economy will continue to face inflationary pressures, largely due to the sharp fall of the Korean won against the U.S. dollar.

"If the won fails to recover quickly it will be difficult to achieve our inflation target for this year of less than 4 percent," the governor said. The Korean currency, which traded at a Friday high of 1,342 to the dollar, has to strengthen to 1,220 won to 1,250 won to keep inflation below 4 percent, he said.

Mr. Chon said upward pressure on prices would continue through the second quarter.

"Last year's hikes in public utility charges are still having an effect," he said, "and more expensive oil products and air freight charges are anticipated because of the weak won." The governor said that if things get worse, consumer prices could rise at a 5-percent rate in the second quarter.



by Oh Jung-hee

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