S Korea freezes key interest rate for 11th month

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SEOUL, July 10 (AFP): South Korea's central bank today left its key interest rate for July unchanged for the 11th straight month, after juggling conflicting pressures from rising inflation and a slowing economy.

The Bank of Korea froze the benchmark 7-day repurchase agreement rate at 5 per cent. The rate has been unchanged since the bank's first back-to-back increases in July and August of last year.

The central bank said the growth rate has slowed while inflation "seems likely to remain significantly high for quite some time" due mainly to rising oil costs.

Inflation hit an annual rate of 5.5 per cent in June, the highest in almost a decade. South Korea, the world's fifth-largest crude buyer, is under pressure both from soaring oil prices and a falling won which makes imports more expensive.

At the same time, the economy is slowing down. Last week the central bank cut its forecast for economic growth this year to 4.6 per cent from 4.7.

The finance ministry last week sharply reduced its 2008 growth forecast to 4.7 per cent from a 6-per cent target set in March.

"While exports continue to post robust growth, domestic demand has weakened," the bank said in a statement.

"There still remains a high degree of uncertainty surrounding future economic developments, largely due to the run-up in international oil prices, the international financial market unrest and the US economic slowdown."

The finance ministry in a separate report cautioned that while exports are propping up the economy, it is "slowing down at a fast pace mainly due to weak consumption."