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S. Korea sees 2nd rise in rate
By Kelly Olsen |
November 17, 2010, Wednesday
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Print Edition
Print Edition
SOUTH Korea's central bank raised its key interest rate yesterday for the second time in four months as higher inflation forces Asian central banks to increase borrowing costs.
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.
The bank also 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.
Asian countries are under increased pressure to contain inflation after their economies rebounded strongly from the global recession and as food prices surge.
China raised its key rate last month for the first time since 2007 and expectations of further rate hikes were kindled after figures last week showed inflation at a 25-month high in October.
India's central bank earlier this month raised rates for the sixth time this year to contain persistently high price rises.
South Korea's 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 propelled by higher prices for farm produce, the central bank's policy committee said in the 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 Governor Kim Choong-soo.
The central bank 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.
Yesterday 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 central bank would increase the rate to 2.5 percent.
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.
The bank also 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.
Asian countries are under increased pressure to contain inflation after their economies rebounded strongly from the global recession and as food prices surge.
China raised its key rate last month for the first time since 2007 and expectations of further rate hikes were kindled after figures last week showed inflation at a 25-month high in October.
India's central bank earlier this month raised rates for the sixth time this year to contain persistently high price rises.
South Korea's 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 propelled by higher prices for farm produce, the central bank's policy committee said in the 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 Governor Kim Choong-soo.
The central bank 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.
Yesterday 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 central bank would increase the rate to 2.5 percent.
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