Bank of Korea keeps rate at record low 2 percent

South Korea's central bank left its key interest rate at a record low Thursday after the country's economic growth slowed at the end of last year, unemployment spiked to a nine-year high in January and concerns grew over financial turmoil in Europe.
The Bank of Korea kept the benchmark seven-day repurchase rate at 2 percent at a monthly policy meeting for a 12th straight month.
South Korea's economic growth slowed in the fourth quarter of last year on weakness in manufacturing, construction and exports, a sign that the country's vigorous recovery from the depths of the global economic meltdown is losing steam.
Gross domestic product grew 0.2 percent in the three months ended Dec. 31 compared with the previous quarter. South Korea's economy, Asia's fourth largest, had expanded 3.2 percent in the third quarter, its strongest performance in more than seven years.
Also, the country's jobless rate surged to a nine-year high in January as the number of people seeking work increased. The unemployment rate rose to 5 percent from 3.5 percent in December, the Korea National Statistical Office said Wednesday. That was the highest since 5.1 percent in March 2001.
The central bank's monetary policy committee said in a statement it will keep rates low "for the time being" to help sustain the country's recovery.
"Domestic economic activity has continued on a recovering trend, which is expected to be maintained," the committee said, citing steady increases in exports and domestic demand as well as gains in production.
"There still, however, remains uncertainty as to the economic growth path due to the risk of government debt crises in some European countries," the statement added, referring to budget concerns in Greece and a few other members of European Union.
Greece has come under intense EU pressure to slash spending after it revealed a massive and previously undeclared budget shortfall last year that has rattled financial markets and the euro, the currency shared by 16 EU members. Its deficit spiraled to above 12 percent of economic output -- more than four times the eurozone limit -- in 2009.
Despite the slowdown at the end of 2009, South Korea's economy has still recorded four straight quarters of growth after contracting in the final three months of 2008 as overseas demand for South Korean products wilted in the wake of the worldwide financial meltdown.
The BOK slashed its key rate six times from October 2008 to battle the impact of the financial turmoil and ensuing economic slump. The bank has left it unchanged since March 2009, however, as the economy stabilized and recovered. It lowered the rate to its current level in February last year.
Besides the unprecedented rate cuts, the South Korean government pumped nearly 50 trillion won ($43.2 billion) of stimulus in the form of extra spending and tax cuts into the economy from late 2008 through 2009 as authorities worldwide took similar measures to revive growth.
Kwon Goohoon, economist at Goldman Sachs in Seoul, said the BOK's rate freeze was no surprise and came after January's weak employment data and disappointing fourth-quarter GDP, which, he wrote in a commentary, "point to still weak underlying domestic demand."
The decision is also in line with the government's view that the rate should be raised gradually "only when recovery trends are firmly established," Kwon said.