BOK freezes key rate for 10th month for March

South Korea's central bank froze the key interest rate for the 10th-straight month on Thursday at the last rate-setting meeting for its outgoing chief as the local economy is improving amid tame inflation.

Bank of Korea Gov. Kim Choong-soo and his six fellow policymakers held the benchmark seven-day repo rate, called the base rate, at 2.5 percent as widely expected.

The March meeting marked the last rate-setting session for Gov. Kim as his four-year term expires at the end of this month. Lee Ju-yeol, a former senior deputy governor at the BOK, will replace him in April if he passes a parliamentary confirmation hearing.

The BOK said that the Korean economy is expected to maintain its uptrend, in line with strengthening recovery paces in advanced economies and improvement in domestic demand.

But the central bank will also pay close attention to the influences of external risk factors such as shifts in major countries' monetary policies and geopolitical risk in Eastern Europe, it said, adding that U.S. monetary stimulus tapering and economic volatility in emerging countries are likely to serve as downside risks.

"The Korean economy is seen as being on the modest recovery track, but consumer inflation is still low and uncertainty over the global economy lingers, which will make it difficult for the BOK to change its monetary policy stance," said Ma Ju-ok, an economist at Kiwoom Securities Co.

The Korean economy is recovering while inflationary pressure remains low. Asia's fourth-largest economy is expected to grow 3.8 percent this year after advancing 2.8 percent last year, according to the central bank.

In the fourth quarter, the local economy grew 0.9 percent on-quarter, slowing from a 1.1 percent on-quarter gain three months earlier.

The country's consumer prices grew 1 percent in February from a year earlier, slowing from a 1.1 percent on-year gain in January, according to a government report. It marked the fourth straight month that the growth has stayed in the 1 percent range, and consumer inflation ran below the BOK's 2.5 percent to 3.5 percent inflation target band for the 21st straight month in February.

Experts said that the BOK's monetary policy stance is not likely to sharply change under the incoming governor's leadership as economic conditions at home and abroad will lead the BOK to stay on course for the time being.

"I believe that the BOK will begin hiking (the key rate) in the second half of this year -- most likely in the late third quarter or in the early fourth quarter when the output gap will have narrowed substantially or even turned positive," said Waiho Leong, a senior economist at Barclays Capital. (Yonhap)