BOK freezes key rate at 3.25% for 5th month

Korea's central bank left the key interest rate unchanged on Friday for the fifth straight month in the face of the deepening eurozone debt crisis and moderated inflation growth.

Bank of Korea (BOK) Gov. Kim Choong-soo and his fellow policymakers froze the benchmark seven-day repo rate at 3.25 percent for November.

The decision is in line with a forecast of 20 economists polled by Yonhap Infomax, the financial news arm of Yonhap News Agency.

Analysts said that dimmer outlooks for the global economy and nagging concerns about Europe's sovereign crisis prompted the BOK policymakers to hold the rate steady for this month.

The country's consumer inflation in October stayed below the upper ceiling of the BOK's 2-4 percent inflation target band for the first time this year, which underscored the central bank's decision to freeze the rate, they added.

"Given high uncertainty about growth outlooks, the BOK may hold the rate steady for a considerable period of time," said Yoon Yeo-sam, a fixed-income analyst at Daewoo Securities.

European leaders are scurrying to stem the region's sovereign stress, but fears that Greece's debt crisis is spreading into larger countries such as Italy gripped the global financial markets this week. Italy's bond yields surged to above 7 percent on Wednesday, chilling investor sentiment.

Growth concerns led the European Central Bank (ECB) and several central banks in emerging countries to cut their interest rates, a move to prevent heightened economic uncertainty from hurting their growth momentum.

The Korean economy grew 0.7 percent on-quarter in the third quarter, slowing from 0.9 percent in the preceding quarter, on weaker consumer spending and faltering facility investment.

Gov. Kim slashed the central bank's 2011 and 2012 growth forecast, indicating that the export-dependent Korean economy will be inevitably hurt by the global slowdown.

Analysts said that the slowed growth of inflation also lent support to the BOK's rate freeze this month, although that does not mean inflation concerns have been dispelled.

In October, Korea's consumer prices rose 3.9 percent from a year earlier, slowing from a 4.3 percent on-year gain the previous month. Consumer inflation surpassed the upper limit of the BOK's 2-4 percent inflation target zone for the ninth consecutive month in September, but fell below the ceiling for the first time this year last month.

Experts forecast that the BOK will likely leave the rate unchanged for December, but presented mixed outlooks about the possibility or timing of a rate cut next year.

The ECB's surprise rate reduction and continued speculation about the Federal Reserve's additional quantitative easing steps underscore efforts by global central banks to shield their economies from the heaviest blows of the global downturn.

Some argue that the BOK is likely to be aligned with global central banks' move to cut the benchmark rates, but others claim that still-high inflation and Korea's economic fundamentals may prevent the BOK from cutting borrowing costs.

"When consumer price growth slows to below the mid-3 percent range, I think the BOK may lower the rate one or two times next year," said Yoon at Daewoo Securities. (Yonhap)