Friday, March 7, 2008

South Korea Central Bank Keeps Interest Rates Unchanged March 2008

South Korea's central bank kept its interest-rate policy unchanged for a seventh month today, citing increasing inflation pressures and the deteriorating global economic outlook.

Governor Lee Seong Tae set the seven-day repurchase rate at 5 percent.
The yield on South Korea's five-year government bond rose 4 basis points to 5.09 percent, reversing an earlier decline.

The won traded at 957.50 per dollar at close of onshore trading in Seoul, little changed from before the decision and posting its biggest weekly loss in seven months. The main Kospi index of shares slumped 2 percent to 1,663.97.

Consumer prices rose 3.9 percent in January from a year earlier, the fastest pace in more than three years. Inflation slowed to 3.6 percent in February. The Bank of Korea in December forecast consumer prices to rise 3.3 percent this year.

Export growth accelerated in February, rising by 20.2 percent, and industrial output increased 2.5 percent in January from December. Expanding demand from China, the Middle East and other emerging markets helped protect Korea's exports from the slowdown in several industrialized economies.

Other figures suggest growth may have peaked after gross domestic product expanded at the fastest annual pace in almost two years in the fourth quarter. Corporate investment fell, inventories rose, and a leading index weakened for a second month, the March 4 production report also showed. The Kospi index has plunged 12 percent this year.

The central bank, which expects prices to moderate in the second half, aims to keep inflation between 2.5 percent and 3.5 percent, on average, for the three years to 2009.

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