South Korea Keeps Key Rate at 5% on Inflation Concern
May 8 -- The Bank of Korea kept interest rates unchanged at the
highest in almost seven years, saying rising commodity prices and a
declining currency are stoking inflation. Bonds declined.
Governor Lee Seong Tae and his board left the seven-day repurchase
rate at 5 percent in Seoul today, as predicted by 13 of 20 economists
in a Bloomberg News survey. Seven forecast a cut.
Asian policy makers are battling to balance fallout from the global
financial crisis against record prices for food and fuel that have
stoked inflation across the region. Indonesia unexpectedly raised
borrowing costs this week, while South Korea and Japan have refrained
from following U.S., English and Canadian central bankers in cutting
rates this year as growth slows.
``The inflation risk is too great to ignore,'' said Oh Suk Tae, an
economist at Citibank Korea Inc. in Seoul. ``Policy makers need more
time to justify a rate cut.''
Crude oil reached a record $123.93 a barrel in New York yesterday.
Global prices for corn, wheat and soybeans have climbed to all-time
highs in 2008, and rice prices have more than doubled in the past
year.
Rising food and energy costs propelled South Korea's inflation to a
four-year high of 4.1 percent in April, breaching the central bank's
target for the sixth straight month. Consumer prices in Singapore are
rising at the fastest pace in a quarter century and China's inflation
rate is close to an 11-year high.
Government Pressure
Lee has resisted pressure from the government to lower borrowing costs
as the U.S. financial crisis cools the global expansion. South Korea's
economy grew at the slowest quarterly pace in more than three years in
the first three months of 2008 as consumers and companies curtailed
spending.
Inflation in South Korea is ``inevitable'' as global food and energy
costs climb, and the government should pursue policies to drive
growth, Finance Minister Kang Man Soo said in an interview in Madrid
this week.
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