South Korea raises interest rates for second month

Chief Regulatory Officer at CSE Renuke Wijayawardhane presenting the listing certificate to Executive Chairperson at Renuka Hotels Shibani Thambiayah

SEOUL, Aug 9, 2007 (AFP) – South Korea Thursday raised its key interest rate for the second time in as many months in an attempt to soak up liquidity and keep inflation in check. But he added that “problems could arise if the BOK is forced to further increase interest rates in the future.” The Bank of Korea announced it was raising its benchmark call rate target for August to 5.00 percent from 4.75 percent, the highest level in more than six years.

In July, the central bank increased the call rate by 25 basis points to 4.75 percent, having held it steady for nearly a year.

Monthly growth in money supply hit a near five-year high in June, jumping a record 34.9 trillion won (37.8 billion dollars) to 1,949.5 trillion won.

Growth of bank loans to smaller firms, one of the key reasons behind surging liquidity, slowed in July due to stricter rules. But at the same time monthly household loan growth more than doubled.

“Despite recent jitters in the international financial markets, the BOK decided that it was appropriate to raise the call rate at this moment considering high liquidity growth,” governor Lee Seong-Tae told reporters.

Lee did not exclude the possibi