S. Korea raises key interest rate
Thu, Jan 13, 2011

SEOUL- South Korea Thursday unexpectedly raised its key interest rate by 25 basis points to 2.75 percent faced with growing inflationary pressure.

Most analysts had predicted no change in the seven-day repo rate following two increases last year by the central bank.

But relatively strong economic growth and increasing raw material prices are putting upward pressure on prices.

Official figures released Wednesday showed new job additions surged to a seven-month high in December.

President Lee Myung-Bak last week urged his cabinet to take a tough stance against inflation and keep it around 3 percent this year. The December figure was 3.5 percent.

His government later Thursday plans to unveil a series of anti-inflationary measures, including a freeze in college tuition and public utility charges. The Bank of Korea, the central bank, expects inflation to rise to 3.5 percent this year from 2.9 percent in 2010.

"Upward pressure on inflation is forecast to expand for the time being," Lee Sung-Kwon, a senior economist at Shinhan Investment Corp, told Yonhap news agency before the decision.

"Rising oil and grain prices, coupled with spillover impacts from China's inflation are pointing to growing price pressure."

The bank had raised the key rate by a quarter-percentage point each last July and November from a record low 2 percent.

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