Bank of Korea hikes interest rate to 3.25 percent

South Korea's central bank raised its ke interest rate for the fifth time in less than a year amid a fight against inflation.

The Bank of Korea announced Friday that it lifted the benchmark base rate to 3.25 percent from 3 percent at a monthly monetary policy meeting.

Experts had been divided on the outcome. A total of nine economists out o 15 surveyed by Yonhap Infomax, the financial news arm of Yonhap news agency, predicted the BOK would leave the rate unchanged.

The decision came even as inflation has eased for two straight months, though it remains outside the central bank's comfort zone for rising prices.

South Korea's consumer prie index came in at 4.1 percent for May, the government announced earlier this month, which was a slight easing from the 4.2 percent recorded in April. The index peaked this year at 4.7 percent in March, which was the highest level since October 2008.

Still, inflation has exceeded the top of the BOK's inflaion "tolerance range" for five straight months through May. That range is plus or minus 1 percentage point from its inflation target of 3 percent.

The bank's base rate influences a variety of borrowing costs in South Korea, including those on overnight loans between financial institutions and more broady on debt for mortgages and credit cards.

South Korea's economy, Asia's fourth largest, grew a revised 1.3 percent in the first quarter of this year from the previous three months, the central bank said Wednesday. That was slightly lower than the 1.4 percent expansion initially announced in April.

The bank announced earlier Friday that the country's producer price index, which measures prices of goods and some services traded between businesses, rose 6.2 percent in May from the same month last year.

South Korea's rate rise came as the European central Bank left its key rate unchanged Thursday at 1.25 percent for the second straight month.

Jean-Claude Trichet, the bank's head, signaled, however, that the rate would likely be raised in July given the danger that higher oil and commodity prices could fuel inflation as the European economy expands.


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