Bank of Korea ups interest rate again

Kim Choong-soo, governor of the Bank of Korea, bangs the gavel to preside over a meeting to decide a benchmark call rate at the bank's headquarters in Seoul yesterday. South Korea's central bank yesterday announced it lifted the benchmark base rate to 3.25 percent from 3 percent after the monthly monetary policy meeting.

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SOUTH Korea's central bank has raised its key interest rate for the fifth time in less than a year as it keeps up a battle against inflation amid solid economic growth.

The Bank of Korea yesterday announced it lifted the benchmark base rate to 3.25 percent from 3 percent at a monthly monetary policy meeting.

Experts had been somewhat divided on the outcome. A total of nine economists of 15 surveyed by Yonhap Infomax, the financial news arm of Yonhap news agency, predicted the central bank would leave the rate unchanged.

South Korea has raised borrowing costs five times since July from a record low 2 percent amid positive economic growth and concerns about rising prices. The latest hike came even as inflation has eased for two straight months, though it remains outside the central bank's comfort zone for price increases.

The bank's rate-setting monetary policy committee, chaired by Governor Kim Choong-soo, said in a statement that the economy was performing well on strong exports, but that prices remained a concern. "The committee expects inflationary pressures to continue in the coming months, driven largely by increased demand from the economic upswing and by inflation expectations," it said.

South Korea's Consumer Price Index came in at 4.1 percent for May, the government announced earlier this month, which was a slight easing from the 4.2 percent recorded in April. The index peaked this year at 4.7 percent in March, which was the highest level since October 2008.

Still, inflation has exceeded the top of the central bank's inflation "tolerance range" for five straight months through May. That range is plus or minus 1 percentage point from the bank's target of 3 percent.

Separately, the bank announced yesterday that the country's Producer Price Index, which measures prices of goods and some services traded between businesses, rose 6.2 percent in May from the same month of last year.

The bank's base rate influences a variety of borrowing costs in South Korea, including those on overnight loans between financial institutions and more broadly on debt for mortgages and credit cards.

South Korea's economy, Asia's fourth-largest, grew a revised 1.3 percent in the first quarter of this year from the previous three months, the central bank said on Wednesday. That was slightly lower than the 1.4 percent expansion initially announced in April.

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