Bank of Korea Raises Interest on Strong Growth

South Korea’s central bank raised its key interest rate Friday from a record low amid prospects for faster growth in the country’s economy.

The Bank of Korea announced that it lifted the benchmark seven-day repurchase rate to 2.25 percent from 2 percent. It was the first time for the bank’s monetary policy committee to increase the rate since August of 2008, just before the onset of the worldwide financial meltdown.

It subsequently slashed borrowing costs six times from October 2008 to help battle the global economic turmoil following the collapse of U.S. investment bank Lehman Brothers Holdings the previous month. It lowered the rate to the record low 2 percent in February 2009, where it stayed until Friday.

The Bank of Korea now joins some others around the world including in Australia, Norway, Canada and Brazil in increasing borrowing costs.

South Korea, Asia’s fourth-largest economy, has recorded five straight quarters of growth after contracting amid the global downturn and the expansion is seen as accelerating this year.

The South Korean government last month raised its 2009 growth forecast to 5.8 percent from 5 percent.

The International Monetary Fund earlier this week raised its 2010 growth forecast for South Korea’s economy to 5.75 percent from its previous projection of 4.5 percent and urged the BOK to begin raising borrowing costs.

“It is now appropriate for the Bank of Korea to start gradually raising the monetary policy rate to avoid falling behind the curve,” the IMF said in a statement Tuesday.

Though expectations for a rate hike were increasing, Friday’s decision still came as a surprise.

A total of 11 economists at 13 financial institutions surveyed by Yonhap Infomax, the financial arm of Yonhap news agency, predicted the rate would remain unchanged. Two predicted a rate hike of 0.25 percent.

KELLY OLSEN, AP Business Writer SEOUL, South Korea