Thursday, March 10, 2011

Bank of Korea hikes key interest rate to 3 per cent

SEOUL, March 10, 2011

South Korea's central bank raised its key interest rate for the second time in three months on Thursday as it tries to control rising inflation.

The Bank of Korea announced that it had lifted the benchmark base rate to 3 percent from 2.75 percent at a monthly meeting. The rate influences a variety of borrowing costs, including those on overnight loans between financial institutions and more broadly on items such as mortgage and credit card debt.

The decision came after South Korea's consumer price index jumped in February to its highest level in more than two years and remained outside the central bank's inflation comfort zone for a second straight month.

The BOK and central banks in China, India, Brazil and other countries have been raising interest rates amid higher inflation. Thailand's central bank hiked its key rate Wednesday by a quarter percentage point to 2.5 percent.

The Bank of Korea's inflation target is 3 percent, though that includes what it calls a "tolerance range" of plus or minus 1 percentage point. February's consumer price index jumped 4.5 percent from the same month last year. That came on the back of January's increase of 4.1 percent.

The central bank expects inflation to increase to 3.5 percent 2011 from 2.9 percent last year.

The decision was in line with expectations and came after the BOK surprised some economists by keeping the rate on hold last month.

Ten economists at 17 financial institutions surveyed by Yonhap Infomax, the financial news arm of Yonhap news agency, predicted the bank would raise the rate at Thursday's meeting.

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