central bank Friday left the key interest rate unchanged for the seventh straight month as it saw heightening risks from Europe's debt crisis and slowing growth in the domestic economy amid high inflation. Bank of Korea (BOK) Gov. Kim Choong-soo and his fellow policymakers held the benchmark 7-day repo rate at 3.25 percent for January, as widely expected. The standpat decision was unanimous. The BOK chief said downside risks to growth in the global economy are getting bigger and the recovery will remain “very moderate” due to Europe's debt crisis, possible slumps in major economies and financial market jitters. “It is hard to say that situations in Europe are improving,” Kim said at a press conference. “Domestic economic growth will remain subdued for some time due largely to the impact of external risk factors.” South Korea is forecast to report lower-than-expected fourth quarter growth, Kim said, citing weak local demand and construction investments. “In this sense, the domestic economy can be seen as contracting.” The BOK estimated earlier that the fourth-quarter growth domestic product (GDP) would rise 4 percent year-on-year. It is scheduled to release the fourth-quarter GDP figure later this month. Despite negative signs in the global and domestic economy, the central bank still sees there are high inflation expectations and therefore the pace of decline in the inflation rate will be moderate, Kim added. The central bank was “in a deadlock situation” over the rate-setting decision, said KB Investment & Securities Co. economist Jason Lee, as high inflation and the slowing economy created conflicting risks, making it difficult for the central bank to either cut or hike the key rate.
