South Korea's central bank froze the key interest rate on Thursday for the third straight month as dimmer global economic outlooks outweighed persisting inflation woes.

   Bank of Korea (BOK) Gov. Kim Choong-soo and his fellow policymakers held the benchmark seven-day repo rate steady at 3.25 percent for September.

   The decision matched the forecast of 12 out of 14 economists surveyed by Yonhap Infomax, the financial news arm of Yonhap News Agency.

   Experts said that growing external risks, including concerns about a U.S. double-dip downturn and Europe's sovereign woes, led BOK policymakers to stand pat on the rate even as the August inflation rate hit a three-year high.

   "It would be inevitable that growing downside risks to the U.S. and Europe will prompt Korea to lower its full-year growth rate. Policy actions focusing on the economy, rather than inflation, have been widely anticipated," Kim Yoon-gee, a senior economist at Daishin Economic Research Institute, said before the decision.

   The BOK joined moves by global central banks like Australia to freeze interest rates on worries about the global economic slowdown.

   The prospects for the global economy are getting bleaker as the first-ever U.S. credit downgrade and the eurozone sovereign risks are raising concerns that the global economy may slide back into a recession.

   South Korea's export-dependent economy grew for the 10th straight quarter in the second quarter, but its quarterly growth slowed to 0.9 percent from 1.3 percent in the first quarter.

   Finance Minister Bahk Jae-wan said last week that the government could revise down its growth outlook for this year, which currently stands at 4.5 percent, citing external economic headwinds. The BOK's 2011 growth forecast stood at 4.3 percent.

   Korea's data on trade and industrial output also point to the slowing growth of the economy. The country's trade surplus shrunk to US$821 million in August on record imports and its industrial output grew at the slowest pace in 10 months in July.

   But even in the face of slowing growth, Korea is facing high inflationary pressure due to a hike in public service charges, high oil and vegetable prices and the continued economic growth.

   Consumer prices jumped 5.3 percent in August from a year earlier, quickening from 4.7 percent growth in July. Core inflation, which excludes volatile oil and food prices, rose 4 percent on-year in August, the sharpest gain in 28 months.

   Consumer inflation surpassed the upper end of the BOK's 2-4 percent inflation target band for the eighth consecutive month, fanning concerns that the BOK may fail to meet its whole-year inflation target of 4 percent.

   Experts are divided over whether the BOK will hike the rate once more or freeze it during the remainder of the year.

   "High inflation pressure means that the central bank's tightening cycle remains intact. One rate hike is expected in the fourth quarter," said Yoon Yeo-sam, an analyst at Daewoo Securities Co.

   But Lim Noh-jung, an economist at Solomon Investment & Securities, said that the BOK will likely hold the rate steady through the remainder of the year on concerns about the economy.

   The BOK has raised the borrowing costs by a total of 1.25 percentage points since July of last year in a bid to tame growing inflation risks.

Source: Yonhap News (Sept. 8, 2011)