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South Korea raises interest rates to 2.75%

South Korea has raised interest rates unexpectedly from 2.5% to 2.75% in an attempt to cool rising prices as the country's economic recovery strengthens.

It is the second time in three months that the central bank has raised rates.

The government also announced a number of measures designed to curb price rises, particularly in food and energy.

A number of Asian economies have raised interest rates in recent weeks in order to control rising inflation.

Thailand raised its rates on Wednesday.

This is in stark contrast to economies in Europe, which are keeping rates low to try to stimulate demand to bolster fragile recoveries.

On Thursday, the European Central Bank kept rates on hold at 1% for the 20th month in a row, while the Bank of England kept rates at 0.5%.
Import tariffs

South Korea's central bank said it expected "inflationary pressures to persist and inflation expectations to increase as the economic upswing continues and international commodity prices continue to rise".

Governor Kim Choong-Soo said the bank would continue to raise rates gradually, by "baby-step 25 basis point hikes".

Meanwhile the government said it would cut import tariffs on certain products and monitor price movements in key daily items more closely.

The Bank of Korea had left interest rates at a record low 2% for 17 months in response to the economic downturn, before raising them to 2.25% in July, then 2.5% in November.

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

BBC News

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