SKorean central bank raises rate to 2.5 percent
South Korea's central bank raised its key interest rate Tuesday for the second time in four months as higher inflation overrode concern about risks from currency tensions and waning global growth.
The Bank of Korea lifted the benchmark seven-day repurchase rate to 2.5 percent from 2.25 percent at a monthly monetary policy meeting after inflation hit 4.1 percent in October.
That year-on-year increase in consumer prices was slightly outside the central bank's comfort zone for inflation. The bank's inflation target is 3 percent, though that includes what it calls a "tolerance range" of plus or minus 1 percentage point.
The increase in inflation was mainly driven by higher prices for farm produce, the central bank's policy committee said in a statement.
"Upward pressures are expected to continue" in line with strength in the domestic economy and increased international raw material costs despite some respite expected from stabilizing vegetable prices, said the committee, which is chaired by BOK Gov. Kim Choong-soo.
The bank removed the wording "under the accommodative policy stance" from its statement, suggesting that interest rates will continue to rise to more normal levels after two years of super-low borrowing costs.
The Bank of Korea slashed its interest rate a total of 3.25 percentage points to a record low 2 percent between October 2008 and February 2009, joining other central banks in combatting the effects of the global financial crisis and economic downturn that followed. It raised the borrowing cost to 2.25 percent in July amid solid growth prospects for the domestic economy and budding inflation worries.
Tuesday's decision was widely expected. A total of 11 economists at 13 financial institutions surveyed by Yonhap Infomax, the financial news arm of Yonhap news agency, predicted the bank would increase the rate to 2.5 percent.