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South Korea Producer Prices Fall by Most in 3 Years as Won Gains

Feb. 18 (Bloomberg) -- South Korean producer prices fell by the most in more than three years as gains in the won made imported raw materials cheaper and international commodity prices declined.

Prices tumbled 1.6 percent in January from a year earlier, the biggest fall since October 2009, after dropping 1.2 percent in December, the Bank of Korea said in a statement today. They rose 0.2 percent from the previous month.

Subdued inflation gives policy makers more room to cut interest rates if necessary to give Asia’s fourth-biggest economy a boost as a weakening yen helps export rivals in Japan. Goldman Sachs Group Inc. said this month that a reduction is likely in April, and possible as early as March, depending on exchange-rate movements and the timing of fiscal stimulus.

The Bank of Korea held benchmark borrowing costs at 2.75 percent for a fourth month last week, ahead of incoming President Park Geun Hye taking office on Feb. 25. The won rose about 23 percent against the yen over the past six months.

To contact the reporter on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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