SEOUL, March 14 (Xinhua) -- South Korea's central bank on Thursday kept its policy rate on hold at 2.75 percent, maintaining its wait-and-see stance for five straight months.
Bank of Korea (BOK) Governor Kim Choong-soo and the monetary policy board members decided to freeze the seven-day repurchase rate at 2.75 percent after cutting the rate by 25 basis points in July and October last year.
The decision was in line with market expectations, as many experts predicted the rate freeze on speculation that the central bank would await future fiscal stimulus measures to maximize the effect of policy mix.
Governor Kim said in a Feb. 21 forum that the BOK "should bear in mind the need to take proper action for growth recovery," reiterating his earlier stance that monetary policy should seek a harmony with fiscal policy to maximize the effect of policy mix.
Given comments made by the finance minister nominee, the new government under President Park Geun-hye was expected to unveil new stimulus measures such as supplementary budget and real estate revitalization package in late March or early April.
"In April, the rate cut will be made," said Yum Sang-hun, a fixed-income analyst at SK Securities. "The central bank head mentioned no change in his outlook for the economy, but the possibility is low for the economy to grow 2.8 percent this year."
The BOK revised down its 2013 growth outlook to 2.8 percent in January, lower than the 3 percent estimated by the Finance Ministry and 3.1 percent by the Organization for Economic Cooperation and Development.
Amid expectations for further rate cut, yields on the three- year Korea Treasury Bond (KTB) closed at a record low of 2.61 percent on Wednesday. The yield kept falling from 2.63 percent as of the end of February and 2.76 percent in late January, staying below the benchmark policy rate of 2.75 percent.
The BOK's rate freeze decision was not unanimous for three straight months. Policy board member Ha Sung Keun was estimated to vote against the majority and favor a 25-basis-point rate cut as seen in the past two meetings.
Some expected the central bank to take non-rate action such as a rise in loans for smaller firms. "We continue to expect the BOK to stay on hold throughout 2013, but to increase the size of aggregate credit ceiling loans by as much as 3 trillion won to support SMEs," said Kwon Young Sun, an economist at Nomura in Hong Kong.
The new government would unveil micro-level stimulus measures, focusing on the property market, small firms and low-income families rather than macro policies such as the rate cut, Kwon said.
Still-elevating household debt could be a hurdle to further rate cuts. A soft landing of household debt problem was part of the 140-point policy agenda for the new government over the next five years. Rate cuts could trigger another household debt increase.
"Given the central bank chief's comments on the policy mix, the BOK would act in line with the new government's stimulus package. But, the central bank has micro-level, monetary-easing tools such as aggregate credit ceiling loans along with macro tools, including rate cuts," said Peter Park, a fixed-income analyst at Woori Investment & Securities.
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