SEOUL, Aug. 8 (Yonhap) - The central bank of South Korea on Thursday froze its key interest rate for the third month in a row, because signals improving the local economy.
The governor of the Bank of Korea (BOK, according to its acronym in English), Kim Choong-soo and his six fellow policy makers, unchanged reference rate of interest for repurchases to seven days, at 2.5 per percent, for the month of August.
In May, the BOK made the first interest rate cut in seven months, in order to support government efforts to stimulate the economy. The central bank lowered it in July and October last year.
"The BOK could have needed more time to evaluate the impacts of the last reduction of key interest rate, as a series of data show increasing signs of economic recovery," said Kong Dong-rak, an analyst at Hanwha Investment & Securities.
Most analysts said it is likely that the BOK kept its key interest rate frozen this year, because the economic recovery is reducing the need to lower the interest rate.
The quarterly economic growth in South Korea accelerated to 1.1 percent in the second quarter, the fastest increase in more than two years, while its consumer inflation remained benign. The BOK readjusted upward last month its economic growth forecast for 2013 to 2.8 percent, and the government expects the local economy to grow 2.7 percent this year.
The growth of the country's consumer prices rose 1.4 percent in July but consumer inflation remained in the range of 1 percent for the ninth consecutive month, remaining below the BOK's inflation target of 2.5 to 3.5 percent.
Despite signs of economic recovery, the South Korean economy still faces risks such as China's economic slowdown and uncertainty about monetary stimulus decreased the U.S. Federal Reserve
Indications that China’s economic slowdown is a cause of concern for policy makers in South Korea as the second largest economy in the world are the biggest trading partner of South Korea. Exports account for about 50 percent of economic growth in South Korea.
