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South Korea's Finance Minister Kang Man Soo said measures to damp demand won't work to contain inflation stemming from higher costs, indicating the government may increase pressure on the bank not to raise interest rates.

“The current price increases seem to be coming from rising costs,'' Kang said before a meeting today in Gwacheon, according to his spokesman Kim Kyu Ok. “There's a limit to controlling inflation by suppressing aggregate demand and money supply.''

Bond prices gained on speculation the finance ministry will pressure the Bank of Korea to keep interest rates on hold, or even cut them, to spur economic growth. South Korea's President Lee Myung Bak won an election this year on a pledge to speed economic growth to 6 percent from 5 percent last year. Lee has the right to appoint three of the Bank of Korea's seven members in April when their four-year terms end.

“Kang's comments were a big boost to sentiment in the bond market as people took them to mean that it's going to be difficult for the central bank to raise interest rates,'' said Seo Chul Soo, a fixed income strategist with Daewoo Securities Co. in Seoul.

The yield on the benchmark five-year note due March 2013 fell 13 basis points to 5.15 percent at 1:48 p.m. in Seoul. South Korea's consumer price index increased 3.6 percent from a year earlier in February after surging at the fastest pace in more than three years in January check cash advance.

South Korea's central bank kept its interest-rate policy unchanged for a seventh month on March 7, saying inflation pressures have increased while the global economic outlook had deteriorated.

Oil, Grain Costs

At the time, central bank Governor Lee Seong Tae said oil and grain costs were driving up inflation more than forecast, damping speculation the bank would cut rates as soon as next month.

“Whether the Bank of Korea will follow the market's expectation for a rate cut without any surprise, it really depends on how inflation and the economy'' evolve, Governor Lee said March 7.

Six of 10 economists surveyed before the March 7 decision forecast the Bank of Korea will reduce interest rates by mid-year.

The government has said it will cut taxes and ease regulations to try to achieve economic growth of 6 percent this year. The ministry said yesterday it will temporarily remove tariffs on 70 items of grains, oil and other raw materials in an effort to curb inflation.

Rising oil prices push up costs for companies as well as South Korea's import bill. The price of Dubai crude oil, South Korea's benchmark, jumped 65 percent since the beginning of last year. South Korea purchases 97 percent of its energy needs from overseas.

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