Bank of Korea keeps key interest at 2.75 percent

SEOUL, South Korea — South Korea's central bank left its key interest rate on hold Friday despite inflation pressures that had led some economists to expect a second straight increase.

The Bank of Korea's monetary policy committee kept the benchmark base rate at 2.75 percent. It influences a variety of interest rates including for seven-day repurchase agreements the central bank carries out with financial institutions.

The decision was closely watched with attention focused on whether the BOK would carry out two consecutive rate increases for the first time in more than three years in a bid to control rising prices. It unexpectedly raised the rate in January for the second time in three months.

Central banks have been raising borrowing costs in a bid to stem inflation. China's central bank raised interest rates Tuesday for the second time since late December to rein in rising prices as well sizzling economic growth. India, Indonesia, Brazil and Hungary are among nations where rates have been raised this year.

The Bank of England on Thursday, however, left its base interest rate at 0.5 percent despite increasing worries about stubbornly high inflation. The rate has been at a record low since March 2009 to stimulate the economy.

Experts had been split on the outcome of the Bank of Korea decision. A total of 11 economists at 19 financial institutions surveyed by Yonhap Infomax, the financial news arm of Yonhap news agency, predicted the bank would not raise the rate.

Price pressures have been growing in South Korea, Asia's fourth-largest economy, and the bank's monetary policy committee, led by Gov. Kim Choongsoo, highlighted that trend in its statement accompanying the decision.

"Consumer price inflation in Korea has increased significantly, driven by the prices of petroleum products and farm produce," the statement said. The committee added that it "expects high inflation expectations to continue and inflationary pressures to also persist as the economic upswing continues."

The central bank's inflation target is 3 percent, though that includes what it calls a "tolerance range" of plus or minus 1 percentage point. January's consumer price index jumped 4.1 percent from the same month last year, landing slightly outside that range. The central bank expects inflation to increase to 3.5 percent 2011 from 2.9 percent last year.

Average South Koreans are growing more worried about rising prices. Consumer confidence fell last month as sentiment for expected inflation rose to 3.7 percent, according to a BOK survey, the highest level in 18 months.