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South Korea Holds Rates, Chance of Rise Seen Waning

South Korea's central bank held its benchmark interest rate steady at 4.50% on Thursday, as widely expected, amid concern about slowing growth in Asia's third-largest economy.

It was the seventh consecutive month that the central bank had kept the overnight call rate target on hold. The central bank's last move was to raise rates in August last year by a quarter of a percentage point.

Economists said the chance was easing for the Bank of Korea to raise interest rates soon, mindful of increasing risks to South Korea's economy on renewed concern about a slowing in U.S. and Chinese growth.

"I had been expecting the Bank of Korea to raise rates once at the end of the second quarter, but it looks like the current market instability and weak domestic demand could have the central bank holding rates for longer than expected," said Lee Dong-su, an economist at Tongyang Investment Bank.

"Real estate prices and consumer demand would be the top factors affecting the rate policy (in the future)."

An official at the Bank of Korea's media department informed reporters of the decision by the central bank's monetary policy committee, without elaborating. Governor Lee Seong-tae is expected to hold a news conference shortly.

All 10 economists in a Reuters poll had expected the central bank to hold interest rates steady.

Financial markets showed a muted reaction to the widely expected decision by the central bank's seven-member monetary policy committee, as investors are waiting for more detailed comments from Governor Lee.

The Bank of Korea said in a statement the economy was maintaining moderate growth and that there was no immediate risk from consumer inflation, retaining its previous view on the economy and consumer prices.

It noted the recent turmoil in global financial markets deserved a further monitoring, but did not specifically express worries.

Financial markets have been volatile over the past week or so amid fears about a reversal in a years-long pattern of borrowing cheap yen to invest in higher-yielding assets elsewhere, and by worries about a U.S. slowdown.