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Bank of Korea Raises Key Interest Rate to 4.75%

Associated Press
Wednesday, 11 Jul 2007 | 11:32 PM ET

The Bank of Korea on Thursday raised its key interest rate for the first time in nearly a year, amid expected strengthening economic growth and possible stronger inflation in the second half of the year.

The central bank said in a statement that it raised its overnight call rate target by 25 basis points to 4.75%. It was the first increase since one of similar scale in August last year.

The decision to raise the rate was expected. Eight of 13 economists surveyed by Dow Jones Newswires expected the central bank to approve the quarter percentage point rate hike.

South Korea's central bank chief, Governor Lee Seong-tae, said the current level of interest rates is not high enough to restrain the economy, and instead could support overall economic growth. "The current 4.75 percent overnight call rate target is not high enough to pose a threat to South Korea's economy," Lee said.

South Korea's economy is expected to grow slightly faster this year than originally forecast, boosted by strength in exports and gradual recovery in domestic demand, the Bank of Korea said Tuesday.

In its semiannual review, the bank said it expects gross domestic product to grow 4.5% this year, compared with its original forecast of 4.4% made earlier this year. The economy grew 5% in 2006.

Inflation in 2007 will likely be lower than earlier forecast, remaining tame in the second half, but higher than the first half, the central bank said.

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