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SEOUL — South Korea's central bank on Thursday unexpectedly left its key interest rate unchanged due to growing uncertainty about the strength of the global economic recovery.
Contrary to market predictions, Bank of Korea governor Kim Choong-Soo and fellow policymakers froze the benchmark seven-day repo rate for September at 2.25 percent.
In July the bank had raised the rate for the first time since the start of the world downturn, increasing it to 2.25 percent from a record low of two percent to forestall inflationary pressure.
"The Korean economy is expected to continue its solid growth, aided by robust exports and recovery in consumption and facility investment, but the possible economic slowdown in major economies and the eurozone debt crisis will act as downside risks to growth," the bank said in a statement.
It said it would "take into account overall financial and economic conditions at home and abroad" in future policy decisions.
Kim told reporters the current rate was not "desirable", suggesting a possible tightening to come. But without mentioning a figure, he said it might take some time for the rate to return to a "neutral level" given the uncertainty over the economic recovery.
The International Monetary Fund last week said a more neutral rate for South Korea would be around four percent. It called for a "carefully calibrated" exit from supportive policies.
Asia's fourth largest economy has rebounded strongly from the slowdown. The IMF upgraded its 2010 growth forecast to 6.1 percent from 5.75 percent, while the central bank is predicting 5.9 percent.
But the finance ministry Tuesday struck a cautionary note about the export-driven economy, saying it faced greater downside risks.
It highlighted economic uncertainties overseas and possible fluctuations in raw material prices.
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