Bank of Korea hikes interest rate to 3.25 percent

SEOUL, South Korea — South Korea's central bank raised its key interest rate for the fifth time in less than a year as it keeps up a battle against inflation amid solid economic growth.

The Bank of Korea announced Friday that it lifted the benchmark base rate to 3.25 percent from 3 percent at a monthly monetary policy meeting.

Experts had been somewhat divided on the outcome. A total of nine economists out of 15 surveyed by Yonhap Infomax, the financial news arm of Yonhap news agency, predicted the BOK would leave the rate unchanged.

South Korea's central bank has raised borrowing costs five times since July of last year from a record low 2 percent amid positive economic growth and concerns about rising prices.

The latest increase came even as inflation has eased for two straight months, though it remains outside the central bank's comfort zone for price increases.

The bank's rate-setting monetary policy committee, chaired by Gov. Kim Choongsoo, said in a statement that South Korea's economy was performing well on strong exports, but that prices remained a concern.

"The committee expects inflationary pressures to continue in the coming months, driven largely by increased demand from the economic upswing and by inflation expectations," the statement said.

South Korea's consumer price index came in at 4.1 percent for May, the government announced earlier this month, which was a slight easing from the 4.2 percent recorded in April. The index peaked this year at 4.7 percent in March, which was the highest level since October 2008.

Still, inflation has exceeded the top of the BOK's inflation "tolerance range" for five straight months through May. That range is plus or minus 1 percentage point from the bank's inflation target of 3 percent.

"The policy statement remains hawkish, signaling further hikes," Kwon Goohoon, economist at Goldman Sachs in Seoul, wrote in a report, adding he expects the bank to raise the rate to 3.75 percent by the end of the year.

South Korea's benchmark stock index fell 1.2 percent to close Friday at 2,046.67 after the rate increase and amid concerns global economic growth is slowing. The South Korean won, meanwhile, rose marginally to 1,082.60 against the dollar.

Separately, the bank announced earlier Friday that the country's producer price index, which measures prices of goods and some services traded between businesses, rose 6.2 percent in May from the same month last year.