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Bank of Korea Keeps Rate at Record Low 2 Percent

Thursday, 10 Dec 2009 11:44 AM

South Korea's central bank left its key interest rate at a record low for a 10th straight month Thursday, seeking to nurture a budding recovery in Asia's fourth-largest economy.

The Bank of Korea's decision to keep the benchmark seven-day repurchase rate at 2 percent came at a monthly policy meeting, the last one scheduled for 2009. The decision was widely expected.

The bank slashed the rate six times from October last year to help battle the impact of the global financial crisis, joining other central banks in reducing borrowing costs to spur their battered economies.

The BOK stopped cutting rates in March and has left the rate unchanged amid signs South Korea is fighting back from its worst slowdown since the 1997-98 Asian financial crisis.

The economy grew a revised 3.2 percent in the third quarter, its best performance in more than seven years, the central bank said last week.

Gross domestic product has expanded three straight quarters after contracting 5.1 percent in the final three months of last year amid the shock of the world financial meltdown.

"Domestic economic activity has continued on a recovering trend thanks to progress in the global economic situation. Exports and consumption have continued to improve," the BOK said in a statement. "However, uncertainty remains over the economic growth path."

The bank said that for the time being, its monetary policy will focus on sustaining the recovery.

Markets for South Korean exports including cars and electronics had withered as consumers around the world slashed spending amid the crisis.

Demand has gradually returned, partially as a result of economic stimulus programs in the United States and elsewhere meant to encourage consumers to spend.

The government said last week that South Korea's exports in November posted their first year-on-year gain in 13 months, increasing 18.8 percent to $34.3 billion.

South Korea's foreign currency reserves hit a record high of $270.89 billion in November, the Bank of Korea said last week, climbing after a steep fall last year amid the global credit crunch that accompanied the crisis.

Joblessness has also improved. South Korea's unemployment rate fell to 3.2 percent in October, the lowest level in 11 months.

All economists at 14 financial institutions surveyed by Yonhap Infomax, the financial arm of South Korea's Yonhap News Agency, predicted the Bank of Korea would keep rates steady at Thursday's meeting.

Economists have broadly expected the bank to begin gradually lifting the rate in the first quarter of 2010 given the vigor of South Korea's recovery. The government, however, has cautioned against any haste. The timing of any hike could also be complicated by the expiration of Gov. Lee Seong-tae's four-year term as central bank chief at the end of March.

Among regional economies, so far only Australia has felt confident enough to increase interest rates. The Reserve Bank of Australia last week raised its key rate by a quarter percentage point to 3.75 percent for the third month in a row as the country's economy rebounds from the global downturn.

In October, Australia became the first major economy to raise interest rates since the outbreak of the financial crisis when the RBA hiked its key cash rate by a quarter point from a 50-year low.

On Thursday, New Zealand's central bank left its key interest rate unchanged at a record low 2.5 percent, the fifth successive review to hold the rate steady as the economy begins to recover from an 18-month recession.

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South Korea's central bank left its key interest rate at a record low for a 10th straight month Thursday, seeking to nurture a budding recovery in Asia's fourth-largest economy.The Bank of Korea's decision to keep the benchmark seven-day repurchase rate at 2 percent came at...
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Thursday, 10 Dec 2009 11:44 AM
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