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S.Korea Holds Rates, Says Risks to Economy Growing

South Korea's central bank on Wednesday held interest rates steady for a sixth straight month as widely expected, but bond futures recouped early losses after the Bank of Korea said inflation would gradually slow.

The bank kept its benchmark overnight call rate target unchanged at 5.0 percent, a media department official told reporters without elaborating.

March treasury bond futures pushed higher following a weak start after the central bank said in a statement on economic trends that inflation would likely gradually slow in the second half amid increasing risks to economic growth.

"The remark about the inflation was not that harsh, and (the central bank's) comments on the growing risks to the economy are influencing the market now," said Kong Dong-rak, a fixed-income analyst at Hana Daetoo Securities.

March treasury bond futures were quoted at 108.00, up 6 ticks on the day and way above an earlier session low of 107.70.

The decision itself came in line with market expectations as all 11 economists in a Reuters poll had expected the central bank to hold interest rates steady. Four of those surveyed had said rates could fall during the next six months.

"Consumer price growth is expected to gradually slow toward the second half of this year, as we had initially forecast, although raw materials prices deserve a continued close watch," the Bank of Korea said in a statement.

It said Asia's fourth-largest economy would maintain a growth trend along the lines of the central bank's earlier expectations but added: "Recently downward risks to the economy are gradually increasing."

The central bank had lifted its benchmark overnight call rate target by a total of 1.75 percentage points between October 2005 and August last year to tackle future inflation and help cool the real estate market.

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