Bank of Korea Keeps Key Rate at 2%

South Korea's central bank froze its key interest rate for a third straight month Tuesday, saying the slowing pace of the economy has clearly eased.

In a monthly policy meeting, the Bank of Korea (BOK) left the benchmark seven-day repo rate unchanged at a record low of 2 percent, as widely expected, according to Yonhap News Agency. The BOK had made six consecutive rate cuts totaling 3.25 percentage points until February in a bid to bolster the slumping economy.

"In recent months, the pace of the downturn in domestic economic activity has clearly eased," the BOK said in a statement. "In the coming months, the Korean economy is likely to register mildly positive growth, but a high degree of uncertainty lingers given the existence of both upside and downside risks."

The rate freeze comes as a set of economic indicators are reinforcing cautious optimism that the Korean economy, Asia's fourth-largest, may be approaching its bottom.

The South Korean economy narrowly averted a recession, or two straight quarters of contraction, by growing 0.1 percent in the first quarter from three months earlier. It shrank 5.1 percent in the last quarter of 2008.

In March, the country's industrial output grew 4.8 percent from a month earlier, maintaining an month-to-month expansion from January. South Korea posted a record trade surplus of $6 billion in April.

Local financial markets have also been stabilizing thanks largely to a buying spree of Korean stocks by foreign investors. The Seoul bourse has risen over 25 percent so far this year and the Korean currency has gained almost 27 percent to the greenback since hitting an 11-year low on March 2.

But despite some budding signs of a turnaround, the government has struck a cautious note, saying it is difficult to predict the timing of a sustained economic recovery due to bleak external conditions.