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Bank of Korea keeps key interest rate at 2%

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South Korea’s central bank left its key interest rate at a record low Friday as new Gov. Kim Choong-soo begins deciding when to end an easy money regime implemented 18 months ago to help fight the global financial crisis.

The Bank of Korea announced that it kept the benchmark seven-day repurchase rate at 2 percent at the first monetary policy meeting chaired by Kim, a U.S.-educated economist who took office April 1 for a four-year term.

The decision to keep the rate frozen was widely expected. All economists at 15 financial institutions surveyed by Yonhap Infomax, the financial news arms of Yonhap news agency, correctly forecast the decision.

Kim is tasked with judging when South Korea’s economic recovery will be strong enough to withstand a hike in borrowing costs from the record low where they have stood for 15 months.

The BOK slashed the key rate six times from October 2008 to battle the global financial meltdown and ensuing economic downturn. The rate has been at the current level since February last year.

Under his predecessor Lee Seong-tae, the bank came under strong political pressure from the government to keep the rate low to protect the country’s economic recovery.

At March’s monthly meeting, the bank’s monetary policy committee cited international sovereign debt concerns as a factor in its decision to keep rates on hold.

Asia’s fourth-largest economy recorded four straight quarters of growth in 2009 after contracting amid the global downturn. The expansion, however, slowed in the fourth quarter of 2009 with gross domestic product growing just 0.2 percent. Unemployment eased to 4.9 percent in February, but was still near a nine-year high.

Still, the BOK expects the export-oriented economy to grow 4.6 percent this year. It grew 0.2 percent in 2009, the worst performance since a contraction of 5.7 percent in 1998 during the Asian economic crisis.

Source: AP

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