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(LEAD) BOK freezes key rate for 10th month in April

All Headlines 13:52 April 13, 2012

(ATTN: UPDATES with more details comments in paras 5-13)

SEOUL, April 13 (Yonhap) -- South Korea's central bank on Friday left the key interest rate unchanged for the 10th straight month in April, as lingering global economic uncertainties and weak pace of economic recovery challenge policymakers.

Bank of Korea (BOK) Gov. Kim Choong-soo and his fellow policymakers froze the benchmark 7-day repo rate at 3.25 percent for this month, as widely expected.

All 20 analysts polled by Yonhap Infomax, the financial news arm of Yonhap News Agency, forecast a rate freeze for April.

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 the global financial crisis. Since July 2010, it has raised borrowing costs by 1.25 percentage points in five steps to curb inflation.

"The decision to freeze the rate was unanimous, with high crude oil prices exerting pressure on inflation and economic growth," Kim told reporters.

He said the country's long-term growth should not fall below 4 percent, although last year's growth reached 3.6 percent. In 2012, the country's economy may grow 3.7 percent.

The top central banker added that all monetary polices are affected by broad economic developments and more short term changes in interest rates and foreign exchange.

He said once the global financial returned to normal, the country's monetary policy can focus more on inflation control.

Kim predicted that while consumer prices have come down, it may not be until 2013 that numbers will come down to meet the central bank's target range of 2-4 percent.

In March, South Korea's consumer price index rose 2.6 percent on-year last month and lost 0.1 percent from the month earlier. Last month's reading is the lowest in 20 months and marks the first time since August 2010 that inflation stood in the 2 percent range. In 2011, the country's consumer prices shot up to 4 percent.

On overall economic developments, policymakers at the Monetary Policy Committee said the U.S. economy is showing signs of improvement, but economic activities in the euro area remained sluggish, with growth in emerging markets continuing to exhibit signs of weakening because of slowing exports.

The pace of economic recovery will be moderate, with developments in Europe's sovereign debt and geopolitical risks in the Middle East needing to be monitored, they said in a statement.

However, South Korea is facing downside risks such as persistent high inflation expectations, concerns over commodities prices and a weak housing market, they added.

Local analysts, meanwhile, said they expected the central bank to freeze the rate again due to global economic uncertainty.

"Consumer price index gains in March helped lower inflationary pressure and there are signs that the domestic economy is making a comeback, but negative on-year growth in exports last month needs to be checked," said Lee Sang Jae, a senior economist at Hyundai Securities Co.

Shin Dong-su, an economist at NH Investment & Securities Co. said although downside risks have decreased overall, which could help South Korea's recovery, there is no need to change the country's interest rate policy at present.


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