South Korea Holds Rates as Global Turbulence Persists

South Korea's central bank held interest rates steady for a fourth consecutive month on Friday, brushing aside growing local inflation but mindful that persistent financial turbulence was clouding the global economy.

The Bank of Korea (BOK) left the overnight call rate target unchanged at 5.0 percent for the fourth month in a row after lifting the rate by a quarter percentage point in both July and August to rein in sizzling local money growth.

A BOK media officer informed reporters of the decision by the central bank's monetary policy committee, which matched market expectations from a Reuters survey, and Governor Lee Seong-tae is due to hold a news conference from around later in the session.

Financial markets held firmer while awaiting Lee's remarks, but economists said the global turbulence sparked by the U.S. subprime mortgage crisis would continue to persuade the Bank of Korea to stand pat for several more months.

"We expect the Bank of Korea to keep rates unchanged for the next three to six months. Inflation will be worth watching but is not anywhere near a critical level at this time. Elements such as oil prices and inflation in China will be the main risks," said Lee Sung-kwon, an economist at Goodmorning Shinhan Securities.

All 11 economists in a Reuters poll had expected the central bank to hold interest rates this month. Of those polled, one expected a cut in the first half of next year and none predicted an increase.

The Bank of Korea said in a statement the local economy was likely to keep expanding unless external risks such as oil prices and the U.S. subprime mortgage crisis worsened greatly, but did not specifically mention future policy.

Latest financial figures point to an increasingly tough task for the central bank in containing still-high domestic money growth, while at the same time helping Asia's fourth-largest economy weather the effects of turbulent global markets.

The latest crop of South Korean indices measuring sentiment among companies and consumers all showed a declining trend, while the central bank has forecast economic growth would slow next year for the second year in a row due to global uncertainties.

The Bank of England cut interest rates for the first time in over 2 years on Thursday and the Federal Reserve is next week widely expected to cut rates for the third time this year to shore up the economy in the face of a global credit crunch.

But some figures suggest it may be premature for the Bank of Korea to end its two-year-long tightening drive, including those showing consumer inflation shot up to a 3-year high and exports rose more than expected both in November.

The Organisation for Economic Co-operation and Development upgraded on Thursday its forecasts for South Korea's economic growth for both this year and next, citing accelerating private consumption and resilient exports.

The Bank of Korea lifted the overnight call rate target by a total of 1.75 percentage points between October 2005 and August this year to head off rising inflation and cool the red-hot real estate market. Policymakers have blamed abundant easy money for the inflation and property market trends.