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SEOUL: South Korea's central bank Thursday raised its key interest rate to the highest level since 2001 in an attempt to curb inflation despite the slowing economy.
The Bank of Korea increased the benchmark seven-day repurchase agreement rate for August to 5.25 per cent from five per cent. The increase, the first for a year, brings the rate to its highest since early February 2001.
"Consumer prices are expected to remain stubbornly high for a considerable time given lingering fallout from higher oil prices and a possible gain in public utility charges," it said in a statement.
Annual inflation hit a near 10-year high of 5.9 per cent in July. The central bank expects full-year inflation of 4.8 per cent.
The bank said domestic demand is likely to remain sluggish but exports are expected to prop up economic growth. In July it downgraded its forecast for this year to 4.6 per cent growth compared to five per cent last year.
The central bank "seems to be trying to cap rising inflation expectations and to prevent them from exerting upward pressure on wages," said Im No-Jung, an economist at Solomon Investment and Securities.
"But the central bank is not likely to raise rates aggressively, given already-slowing domestic demand," he told Yonhap news agency, adding it may freeze the rate for the rest of the year.
- AFP/yb
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