BOK freezes key rate for 12th month

Korea’s central bank left the key interest rate unchanged yesterday for the 12th straight month in the face of challenges posed by European fiscal concerns and sluggish domestic economic growth.

Bank of Korea Gov. Kim Choong-soo and his fellow policy makers froze the benchmark 7-day repo rate at 3.25 percent for June, as had been widely expected.

The decision was in line with forecasts by analysts polled by the Korea Financial Investment Association earlier in the week.

The BOK cut the benchmark rate by 3.25 percentage points to a record low of 2 percent between October 2008 and February 2009 in the wake of a global financial crisis. Since July 2010, it has raised borrowing costs by 1.25 percentage points in five steps to curb inflation.

“Mounting euro zone woes, slowing growth in the United States and China, and their impact on Korea’s economy fueled calls for cutting rates, but this was offset by lingering concerns about inflationary pressures, which effectively influenced the decision to freeze rates,” a BOK source said.

He added that month-to-month economic fluctuations also made it hard to gauge trends that could help policy makers.

The central bank, meanwhile, said Asia’s fourth-largest economy has been growing at a gradual pace from January to April helped by improvements in retail sales, facilities investments and exports. It said the construction sector continued to weigh down the economy.

It said a fall in international crude prices could improve overall conditions and predicted the country will be able to maintain its current account surplus. Yonhap