SEOUL, Oct. 13 (Yonhap) -- South Korea's central bank held steady the key interest rate on Thursday for the fourth straight month as the global economic outlook remains dimmer and inflation growth eased.
Bank of Korea (BOK) Gov. Kim Choong-soo and his fellow policymakers froze the benchmark seven-day repo rate at 3.25 percent for October, as widely expected.
"The Korean economy is likely to be on track for long-term growth but downside risks to growth are dominant, given a weakening recovery in advanced economies and Europe's debt crisis," the BOK said in a statement.
The central bank said the growth pace of consumer inflation is expected to slow but core inflation, which excludes volatile food and oil prices, will likely keep rising due to inflation expectations.
Analysts said the rate freeze came as a patch of external economic risks including the faltering U.S. economy and Europe's debt crisis outweighed concerns about inflation.
"Downside risks to growth heightened and inflation eased from a peak, which would prevent BOK policymakers from raising the rate," said Park Jong-youn, an economist at Woori Investment & Securities.
"I think that the BOK is expected to freeze the borrowing costs for the time being and may cut the rate in the second quarter of next year on growth concerns."
The prospects for the global economy remain bleaker as a sputtering growth of the U.S. economy and the eurozone sovereign strains are raising concerns that the global economy may slide back into a recession.
Gov. Kim cut the BOK's 2011 and 2012 growth forecast on Friday, indicating that the export-dependent Korean economy will be inevitably hurt by the global slowdown.
The governor said that the Korean economy is likely to grow at a slower pace than the BOK's earlier forecast of 4.3 percent in 2011 although its growth will be higher than 4 percent. He projected that the local economy will likely grow at the low-4 percent range for 2012, slowing from the bank's previous estimate of 4.6 percent.
South Korea's industrial output fell for the second straight month in August amid growing uncertainties surrounding global market situations.
South Korea is facing nagging concerns about high inflation, but the September inflation data gave some excuses to BOK policymakers for freezing the key rate for October.
Consumer prices rose 4.3 percent in September from a year earlier, slowing from a three-year high of 5.3 percent in August.
But the eased growth of inflation does not mean that upward pressures on consumer prices were dispelled as the local currency's recent weakness is feared to add to price pressure.
Consumer prices topped the upper ceiling of the BOK's 2-4 percent inflation target band for the ninth consecutive month, fanning concerns that the BOK will fail to meet its whole-year inflation target of 4 percent.
More analysts are betting that the BOK is likely to leave the key rate unchanged for the rest of the year, but some experts even penciled in a chance of a rate cut early next year.
The BOK said in a monetary policy report that it plans to take a cautious approach to managing the rate policy by taking stock of risk factors at home and abroad, spawning speculation that the bleaker global outlooks will lead the BOK to take no action this year.
Last month, Gov. Kim downplayed the possibility of a rate cut, saying that the current economic growth momentum does not warrant one.
"Growing prospects of the economic downturn may exert high pressure (on the BOK) to cut the rate. But given lingering inflationary pressure that will continue into next year, the BOK is likely to keep the borrowing costs steady throughout next year," said Shin Dong-jun, a fixed-income analyst at Dongbu Securities Co.
But Lee Jung-beom, a fixed-income analyst at Korea Investment & Securities, did not exclude the possibility of a rate cut down the road, saying that the central bank may slash the key rate in early 2012, citing that the economy is slowing and inflation growth is expected to be in the 3 percent range.
The BOK has raised the borrowing costs by a total of 1.25 percentage points in five steps since July of last year in a bid to tame growing inflation risks.
