Roundup: S.Korea freezes policy rate at record low amid uncertainties

South Korea's central bank on Tuesday froze its policy rate at a record low of 2 percent, refraining from altering the rate for four straight months, amid various uncertainties such as growing household debts at home and the U.S. Federal Reserve's possible interest rate increase. Bank of Korea (BOK) Governor Lee Ju-yeol and six other policy board members decided unanimously to keep the benchmark seven-day repurchase rate on hold at 2 percent.

Despite uncertainties at home and abroad, the BOK was widely expected to freeze the rate as the bank lowered it in August and October in 2014.

The bank sought to wait and see the effect from the previous rate cuts amid growing household debts caused by easing regulations on mortgage financing and a decline in lending rate stemming from the policy rate cut.

Debts owed by households to banks amounted to 562.3 trillion won (511 billion U.S. dollars) as of end-January, up 1.4 trillion won from a month earlier.

Loan demand from households tended to fall in January when companies pay year-end bonuses and the housing market is seasonally weak.

The unusual increase came as the financial regulator eased regulations on mortgage financing, resulting in brisk housing transactions. Nationwide home transactions soared 34.1 percent to 79,320 in January, logging the highest January figure since the data began to be compiled in 2006.

The U.S. Federal Reserve is widely expected to end its "zero- rate" policy within this year, discouraging the BOK from cutting its policy rate further. The widening of difference in interest rates between the two countries could cause a foreign capital exodus from South Korea.

Governor Lee told reporters after the policy meeting that the policy board members considered household debts when deciding on the policy rate, together with economic and inflation conditions.

Despite his explanation, expectations remained for the BOK's additional rate cuts as more than 20 countries took more accommodative monetary policy in the past two months.

The South Korean currency recently weakened to the U.S. dollar on expectations for the Fed's rate increase, but the currency rose against the Japanese yen and the European single currency. "The United States is weighing the timing of interest rate normalization while other countries are easing monetary policy. It resulted in the strong dollar and the weakness of other currencies, " Lee said.

Among the weakening currencies, the South Korean won rose sharply to the euro and the yen, the movement of which the BOK is closely monitoring, but the European and the Japanese economies showed sluggish recovery and low inflation unlike South Korea, the governor said, dismissing possibilities for further rate cuts.

The BOK revised down its 2015 growth outlook for the economy to 3.4 percent from an earlier estimate of 3.9 percent. Governor Lee said the 2-percent policy rate at a level to bolster the real economy.

South Korea's headline inflation stayed below the BOK's target band of 2.5-3.5 percent for a protracted period of time, but the BOK kept its position that it mainly came from supply-side factors such as low oil prices.

Consumer prices rose 0.8 percent in January from a year earlier, staying below 1 percent for two straight months. Producer prices declined for six straight months in January on the back of low crude oil prices.

Dubai crude, South Korea's benchmark, tumbled 24 percent in January after plunging 21.9 percent in December and 11.2 percent in November respectively.

Economic data showed an upbeat picture. Employment increased 422,000 in December from a year earlier, and production in mining and manufacturing industries expanded 3 percent in December from a month earlier.

Retail sales rose 2.2 percent in December from a month earlier, up from a 1.8 percent growth the previous month. Exports edged down 0.4 percent in January from a year ago as low crude prices dragged down the export prices of petroleum products. Endi