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January 9, 2010

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S. Korea keeps key rate at record low

THE Bank of Korea left its key interest rate at a record low yesterday after the government muscled in on the central bank's policy meeting, invoking a seldom used right to underline its concern that higher borrowing costs could derail the economic recovery.

The decision to leave the benchmark seven-day repurchase rate at 2 percent for the 11th straight month was widely expected, though South Korea's rapidly recovering economy appears increasingly capable of withstanding higher interest rates.

The finance ministry, which has been cool to the prospect of rate hikes, exercised its right to sit in on the policy meeting for the first time in a decade, sending Vice Minister Hur Kyung-wook as an observer.

The Ministry of Strategy and Finance said in a statement on Thursday announcing its decision to attend policy meetings this year that it respects the BOK's independence but emphasized "the need for policy coordination between the government and central bank during times of economic crisis."

The bank slashed the benchmark rate six times starting in October 2008 to help battle the impact of the global slowdown, but has left it unchanged since last March as the economy stabilized and began to recover.

Asia's fourth-largest economy has recorded three straight quarters of growth largely on a rebound in exports and manufacturing after contracting in the final three months of 2008.

In a statement yesterday, the bank's monetary policy committee said South Korea's recovery is expected to continue.


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