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2010/01/04 12:00 KST
S. Korea's 2007-09 inflation stays within central bank target

SEOUL, Jan. 4 (Yonhap) -- South Korea's consumer inflation stayed within its mid-term target band between 2007 and 2009 despite a sharp rise in oil prices and the local currency's weakness against the U.S. dollar, the central bank said Monday.

   The Bank of Korea (BOK) said it met its inflation target of between 2.5 percent and 3.5 percent during the three-year period as consumer prices grew an annual average of 3.3 percent.

   "The movement of the country's consumer inflation was swayed during those years by shocks from the supply side like (high) oil prices and a weaker won," the BOK said in a statement.

   Fluctuation in consumer prices sharply increased during the past three years with inflation breaching the upper limit of the BOK's target range for the 17th straight month in April 2009, it added.

   The bank noted that due to volatility in oil prices, the country's core inflation, which excludes volatile food and energy prices, stayed above the consumer inflation rate for more than one year.

   After peaking at $147 per barrel in July 2008, oil prices now hover near US$80 per barrel. South Korea, the world's fifth-largest crude buyer, relies entirely on imports for its oil needs.

   Hit by the U.S.-sparked global financial meltdown, the Korean currency tumbled 25.7 percent to the greenback in 2008 alone, becoming one of the world's worst-performing currencies. The won gained 8.16 percent per the dollar last year.

   The central bank hiked the key interest rate to an over 7-year high of 5.25 percent in August 2008 in a bid to control spiraling inflation. It cut the rate by a total of 3.25 percentage points to a record low of 2 percent between October 2008 and February 2009 in an effort to put the brakes on a sharp economic free-fall.

   The BOK widened its 2010-2012 inflation target band by setting the median consumer price target at 3 percent with a margin of plus or minus 1 percentage point.

   The move is widely seen to provide more leeway for the bank to manage its monetary policy flexibly and better cope with economic uncertainty.