key rate-March

By Kim Soo-yeon

SEOUL, March 14 (Yonhap) -- South Korea's central bank froze the key interest rate for the fifth straight month on Thursday, apparently awaiting what measures the new government will take to stimulate the slowing economy.

As widely anticipated, 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 said that the recovery pace seems to be sustained although the trend of improvement has faltered slightly.

"The Korean economy is expected to be on the trend of modest improvements. But downside risks linger such as fiscal tightening in advanced economies and the future direction of the yen's value," the central bank said in a statement.

But more analysts said that the March move was seen as a pause before probably cutting the key rate in April when the blueprint of the government's economic stimulus package will be clarified.

"A policy-coordinated rate cut seems likely to come in April as the process for the government reorganization is being delayed," said Shin Dong-su, an analyst at NH Investment & Securities Co.

He said that as the global economy is showing some signs of improvement, it would be difficult for the central bank to cut the key rate twice within this year.

A batch of economic data at home and abroad are sending mixed signals about the economic recovery, although expectations are growing that the global economy will turn better in the second half.

Korea's industrial output shrank for the first time in five months in January while its exports declined for a second time in three months in February.

Gov. Kim said last month that the Korean economy may not deteriorate further, saying that the current policy stance is already viewed as accommodative.

But despite some signs of improvements, market players are still betting on a rate cut, claiming that the BOK will likely move after taking into account the government's stimulus packages.

President Park Geun-hye took office on Feb. 25 with pledges to support smaller firms and debt-ridden households. But the government's economic policy direction has yet to be unveiled as the bill on the government reorganization is still pending in parliament.

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.

Driven by foreigners' bond buying, the return on three-year government bonds hit a record low of 2.61 percent on Tuesday.

"The yen's weakness somewhat eased recently, but export momentum remained weak. The local economy has moved sideways since the second half of last year," said Lee Sung-kwon, a senior economist at Shinhan Investment Corp.

Expectations for a rate cut are alive in the market, 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.

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