S. Korea's central bank boosts key rate for June

South Korea's central bank on Thursday raised its key interest rate for June in an apparent attempt to preemptively rein in inflationary pressure as the economy revives.

The Bank of Korea's seven policymakers boosted the June target for the call rate by 0.25 percentage point to 4.25 percent after maintaining the rate for a third straight month in May. The call rate refers to the interest charged on overnight inter-bank loans.

The result is in line with analysts' expectations. Nine out of 17 analysts surveyed by Yonhap Infomax, the financial news arm of Yonhap News Agency, predicted the bank would raise the call rate, while the remaining eight forecast a rate freeze.

"There are rising inflationary pressures due to the economic recovery and persistently high oil prices," the bank said in a statement. "The recent rebound in real estate prices has continued."

A rate hike to 4.25 percent is enough to boost economic recovery, the central bank chief Lee Seong-tae said after the rate session. Without much fluctuation in oil prices and the won's value against the U.S. dollar, the economy will continue its upward move despite the rate hike, he said.

In line with the key rate hike, the nation's top lender Kookmin Bank raised its deposit rate by as much as 0.3 percentage point, while other lenders also followed suit.

South Korea's consumer prices increased at a faster-than-expected pace in May due to a rise in the prices of industrial goods. Consumer prices increased 0.2 percent in May from the previous month, up from a 0.1 percent monthly advance in April, according to the nation's statistics office earlier this month.

South Korea's central bank expects such inflationary pressure to heighten in the second half as the economy emerges from a two-year slump. In 2006, Asia's fourth-largest economy is expected to grow 5 percent, up from a 4 percent advance last year, on the back of reviving consumer spending and resilient exports.

A rate hike is expected to rein in such rising consumer price inflation by making the cost of raising debt high and encourage consumers to set aside their money in bank accounts. The Bank of Korea has been raising the rate since October last year as the economy shows signs of a recovery.

Experts pointed out, however, that soaring oil prices and the won's ascent against the U.S. dollar may emerge as key stumbling blocks for the world's 10th-largest economy. A rate hike this month will give the bank more room in its monetary policy next year, when the economy's growth momentum is expected to slow down, they said. Seoul, June 8 (Yonhap News)