South Korea's central bank froze the key interest rate for the fifth straight month on Thursday as the new government is poised to take measures to stimulate the slowing economy.
In a split decision, Bank of Korea (BOK) Gov. Kim Choong-soo and his fellow policymakers held the benchmark seven-day repo rate steady at 2.75 percent for March. The central bank cut the rate in July and October 2012.
The rate freeze came as the global economy is showing some signs of stabilizing while geopolitical risks from North Korea have heightened.
"The BOK's forecast for the growth path made in January is still valid ... The current policy stance is already viewed as accommodative," Kim told a press conference.
But the governor also did not close the door for a rate cut, saying that if certain economic conditions warrant policy harmonization with the government, the central bank may mull taking action.
"When policies are harmonized, they are helpful (for generating) intended impacts on the economy."
The March rate-session came after Park Geun-hye took office on Feb. 25 with pledges to support smaller firms and debt-ridden households.
The South Korean economy is likely to grow 2.8 percent this year, underperforming its long-term potential growth of some 3.8 percent. The BOK cited fiscal tightening in advanced economies and the yen's weakness as downside risks to growth.
Finance minister nominee Hyun Oh-seok told a parliamentary confirmation hearing Wednesday that the Korean economy is in "serious" condition, necessitating comprehensive measures to spur growth. Speculation is rampant that the government will draw up supplementary budgets.
Gov. Kim earlier said that when monetary and fiscal policies are coordinated, the impact of the policy mix will increase.
But despite some signs of improvements, market players are still betting on a rate cut, claiming that the BOK may lower the borrowing costs after taking into account the government's stimulus package.
After trading lower, bond futures closed unchanged on rate cut prospects. The local currency ended at 1,109 won per the dollar, down 11.6 won from the previous session.
"The BOK may cut the rate in April after reviewing what measures the new government will take to prop up growth," said Park Sang-hyun, a senior economist at Hi Investment & Securities Co.
"The central bank would lower the rate as part of efforts for policy coordination."
Lee Sung-kwon, a senior economist at Shinhan Investment Corp. said that despite the eased weakness of the yen, export momentum remained weak and the local economy has moved sideways since the second half of last year.
"The BOK is likely to slash the rate once this year as the improving economy would make it refrain from cutting the rate twice," Lee said.
But others said that the BOK is likely to freeze the rate throughout this year as the Korean economy will pick up down the road.
"The government's economic stimulus measures may allow the BOK to hold the key rate steady as the global economy is showing signs of stabilizing," said Yoon Yeo-sam, a fixed-income analyst at KDB Daewoo Securities Co.