South Korea raises interest rates to 2.5%

Image caption,
The South Korean economy has slowed recently but is still expected to show healthy growth this year

South Korea's central bank has raised interest rates to 2.5% from 2.25% following its latest policy meeting.

The decision was widely expected with most economists having forecast an interest rate rise in October.

The Bank of Korea had left the rate at a record low 2% for 17 months in response to the economic downturn, before raising it to 2.25% in July.

Observers said accelerating inflation had overridden concerns about waning global growth.

Inflation hit 4.1% in October - with the bank having set a target of 3%. Rising prices for farm produce lay behind the increased cost of living, the bank said.

It added that such "upward pressures" were expected to continue, with the domestic economy set to remain strong and the costs of raw materials from abroad rising.

South Korea is Asia's fourth largest economy. Latest figures showed growth in the three months to the end of September was only 0.7% compared with 1.4% in the previous quarter.

Earlier this month, both Australia and India raised interest rates by a quarter percentage point amid fears of rising inflation.

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