The Bank of Korea (BOK) announced Thursday to raise its key interest rate for August to a five-year high of 4.5 percent.

The call rate, which refers to the interest on overnight inter- bank loans, will be raised by 0.25 percent to 4.5 percent, the BOK 's Monetary Policy Committee announced after holding a meeting in the morning.

"We still hold our outlook that consumer price inflation will accelerate," BOK Governor Lee Seong-tae said.

"Some downside risks have emerged and the growth momentum has weakened slightly, but the economy is still on the growth path," he said.

The BOK decision of rate hike "seems to be reflecting the committee's confidence in the economy," South Korea's Deputy Finance Minister Kim Seok-dong told reporters.

Following the central bank decision, the Woori Bank, one of the major local banks, said it will boost its one-year deposit rates from 4.6 percent to 4.7 percent.

The central bank predicted that South Korea's consumer price inflation will reach 3 percent by the end of this year as the economic recovery and soaring oil prices add to upward pressure on consumer prices.

Source: Xinhua