S. Korea Leaves Interest Rate at 2.25%

South Korea’s central bank left its key interest rate unchanged Thursday as the outlook for the global economy dims — a month after raising it from a record low.

The Bank of Korea’s decision to leave the benchmark seven-day repurchase rate at 2.25 percent was widely expected.

Government debt problems in some European countries have eased but risks still loom, the central bank said in a statement. “Heightened volatility of economic activity in major countries acting as a risk factor cannot be ruled out,” it said.

Recent figures show the recovery in the U.S., the world’s biggest economy, is slowing while China’s rapid expansion is cooling. Faltering recoveries in those countries could have global repercussions as both are major consumers of exports from consumer electronics to iron ore to factory equipment.

But the BOK’s governor said the global economy slipping back into recession is not likely despite the slow U.S. recovery.

“Key economic organizations and central banks predict that the global economy does not face much danger of being hit with a double dip,” Governor Kim Choong-soo said at a press conference after the rate decision.

South Korea’s benchmark stock index declined by 1.2 percent to 1,736.99 amid broad falls in regional markets as investors digested more evidence the global recovery is slowing. The South Korean won weakened by 0.8 percent after the rate decision to 1,192.50 to the dollar from 1,182.50 on Wednesday.

The decision to leave the rate on hold came after the bank’s monetary policy committee decided to hike it from a record low 2 percent in July. That was the first increase since August of 2008.

The bank began slashing the benchmark borrowing cost in October 2008 to help battle the global financial meltdown. It stood at 2 percent for 17 months from February 2009.

South Korea’s economy, Asia’s fourth largest, has recorded six straight quarters of growth after contracting amid the worldwide downturn, propelled by record-low interest rates, government stimulus spending and robust exports. The BOK expects the economy to grow 5.9 percent in 2010 compared with 0.2 percent last year.

A contraction in construction and slower growth in government spending and services, however, caused gross domestic product to slow in the second quarter to 1.5 percent from 2.1 percent in the first.

Even as it left the rate unchanged, the central bank continued to warn that inflation will rise over the coming year.

The BOK has said South Korea’s consumer price index will rise at a faster pace in the second half of the year and would exceed the bank’s inflation target of 3 percent from the fourth quarter onward

For 2010, inflation will reach 2.8 percent, the same as last year, but is expected to rise to 3.4 percent in 2011, according to the bank.

SANGWON YOON, Associated Press Writer SEOUL, South Korea