Kim Choong-soo, governor of the Bank of Korea, arrives to preside over a meeting to decide a benchmark call rate at its headquarters in Seoul, South Korea, yesterday. (Photo: AP)

SEOUL, South Korea

South Korea’s central bank froze its key interest rate yesterday despite rising inflation as it monitors potential threats to the global economy — including Japan’s massive earthquake.

The Bank of Korea kept its benchmark base rate at three per cent at a monthly policy meeting, in line with expectations, after having raised it in two of the previous three months to fight gains in consumer prices.

The bank, however, warned that inflation remains a threat and used hawkish wording in its statement accompanying the decision to suggest further rate hikes in coming months.

South Korea’s consumer price index increased 4.7 per cent in March from the year before, the government announced earlier this month, as costs for food and gasoline rose. It was the biggest increase in monthly inflation since the 4.8 per cent recorded in October of 2008.

Inflation has been outside the bank’s “tolerance range” — plus or minus one percentage point from its inflation target of three per cent — for three straight months.

The bank’s rate-setting monetary policy committee led by Gov Kim Choongsoo said in a statement after the decision that domestic inflation was likely to continue in coming months and that it will “conduct monetary policy with a greater emphasis on ensuring the basis for price stability is firmly anchored.”

The bank added the word “greater” to April’s statement — a clear hint of further rate increases.

The committee also said it expects the global economy to maintain its recovery pace, but cautioned that political unrest in the Middle East and North Africa, euro zone debt worries and Japan’s March 11 earthquake could pose “downside risks.”

The BOK has raised its benchmark interest rate four times since July of last year from a record low two per cent amid a positive economic growth outlook and worries about inflation. The increases have come as monetary authorities in China, India, Brazil and some other countries have also been tightening policy to rein in prices.

The base rate is important in South Korea as it influences a variety of borrowing costs, including those on overnight loans between financial institutions and more broadly on debt for mortgages and credit cards.

Tuesday’s decision was expected. A total of 18 economists surveyed by Yonhap Infomax, the financial news arm of Yonhap news agency, predicted the bank would leave the rate on hold at the April meeting.

South Korea’s economy, Asia’s fourth largest after China, Japan and India, grew a revised 6.2 per cent last year, recovering from an expansion of 0.3 per cent in 2009 when it was hit by the global slump that followed the financial meltdown of late 2008.

The BOK has forecast that growth will slow this year to a more sustainable level of 4.5 per cent and pick up to 4.7 per cent in 2012. The International Monetary Fund in its latest outlook for the global economy released Monday agreed with the bank’s forecast for this year, but said it expects South Korean growth to slow to 4.2 per cent in 2012.

The IMF also forecast that the global economy will expand 4.4 per cent in 2011.