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Bank of Korea switches monetary policy to support growth - report

Monday, 1 Oct 2012 | 11:00 PM ET

SEOUL, Oct 2 (Reuters) - South Korea's central bank said on Tuesday it was now directing monetary policy at boosting economic growth, a shift in emphasis away from the price stability stressed in its statement last month.

"The Bank of Korea plans to manage monetary policy for economic growth to recover to the potential rate while ensuring inflation remains stable at the middle of the target range," it said in a policy report to parliament, which the central bank is required to submit at least twice a year.

The Bank of Korea said after its last policy meeting on Sept. 13 that it would direct policy toward stabilising consumer price inflation over the medium term while "ensuring that the growth potential is not eroded".

It cut its policy interest rate by 25 basis points to 3.0 percent in July in a surprise move and has since kept it unchanged pending stimulus measures not only from the country's government but from the major economies.

Indicators have increasingly shown that since the July policy meeting, Asia's fourth-largest economy lost momentum more rapidly than expected as global demand slumped in the shadow of Europe's protracted debt crisis.

Annual inflation picked up to 2.0 percent in September from a 12-year low of 1.2 percent in August on a surge in food prices after heavy rainfall, data showed on Tuesday, but was far shy of the central bank's 3 percent target.

An HSBC/Markit purchasing managers' index (PMI) of South Korea's manufacturing sector fell to a seasonally adjusted 45.71 in September from 47.50 in August, touching its lowest since February 2009.

Market rates indicate investors expect the Bank of Korea to lower interest rates again at its Oct. 11 meeting.

(Reporting by Christine Kim; Editing by Choonsik Yoo and Eric Meijer)

((christine.kim@thomsonreuters.com)(822 3704 5665)(Reuters Messaging: christine.kim.thomsonreuters.com@reuters.net))

Keywords: KOREA ECONOMY/RATES