ivm 5e opeenvolgende kwartaal groei en van 5% naar 5.8% groeiverhoging forecast vorige maand
Bank of Korea raises key rate from record low
Bank of Korea raises key interest rate to 2.25 percent from record low 2 percent
Kelly Olsen, AP Business Writer, On Friday July 9, 2010, 4:39 am EDT
SEOUL, South Korea (AP) -- South Korea's central bank unexpectedly raised its key interest rate from a record low amid prospects for robust growth as Asia leads the global economic recovery.
The Bank of Korea announced Friday that it lifted the benchmark seven-day repurchase rate to 2.25 percent from 2 percent. It was the first increase since August of 2008, just before the onset of the worldwide financial meltdown.
It subsequently slashed borrowing costs six times from October 2008 to help battle the economic turmoil following the collapse of U.S. investment bank Lehman Brothers Holdings. It lowered the rate to the record low 2 percent in February 2009.
The Bank of Korea is following others around the world including Australia, Norway, Canada, Brazil, New Zealand and Malaysia in raising interest rates even as the mountain of government debt in Europe raises the risks of more financial and economic turmoil. It suggested borrowing costs will remain relatively low to avoid disrupting the expansion of Asia's fourth-largest economy.
"Domestic economic activity is expected to continue on an upward track, even with the presence of overseas risk factors," the bank's monetary policy committee said in a statement.
It warned that "upward pressures are expected to build continuously" in consumer price inflation.
Financial markets rose after the decision. South Korea's benchmark stock gained 1.4 percent to close at 1,723.01. The South Korean won, meanwhile, strengthened to 1,196 to the dollar from 1,209.30 Thursday.
South Korea's economy has recorded five straight quarters of growth after contracting amid the global downturn. Future prospects are considered bright.
The South Korean government last month raised its 2009 growth forecast to 5.8 percent from 5 percent. The International Monetary Fund earlier this week raised its 2010 growth forecast for South Korea's economy to 5.75 percent from its previous projection of 4.5 percent and urged the BOK to begin raising borrowing costs.
"It is now appropriate for the Bank of Korea to start gradually raising the monetary policy rate to avoid falling behind the curve," the IMF said in a statement Tuesday.
The South Korean government, which had long cautioned against what it saw as the danger of raising the rate too soon, appeared to accept the bank's action.
"We respect the committee's decision to raise the benchmark rate," said Yoon Jong-won, director general of the economic policy bureau at the Ministry of Strategy and Finance, according to his ministry. "We believe that the decision was made based on the current consumer price and economic growth situation."
Though expectations for a rate hike were increasing, Friday's decision still came as a surprise.
A total of 11 economists at 13 financial institutions surveyed by Yonhap Infomax, the financial arm of Yonhap news agency, predicted the rate would remain unchanged. Two predicted a quarter percentage-point increase.
Kwon Goohoon of Goldman Sachs in Seoul said the rate hike came a month earlier than expected but did not signal the start of an aggressive rate hike campaign.
"We find the rate hike appropriate and expect one more hike for the remainder of this year," he wrote in a report. "We continue to believe that this is the start of a gradual and moderate withdrawal of monetary accommodation."