2nd LD Writethru: S.Korea freezes interest rates at record low of 1.75 pct

South Korea's central bank on Thursday froze the benchmark interest rate after cutting it to an all-time low in March on worries about surging household debts and the potential foreign capital exodus.

Bank of Korea (BOK) Governor Lee Ju-yeol and six other policy board members decided to keep the seven-day repurchase rate on hold at 1.75 percent. The policymakers cut the policy rate below 2 percent last month for the first time in the country's history.

It was in line with market expectations. According to a poll by the Korea Financial Investment Association (KFIA), 96.4 percent of fixed-income experts had expected the rate freeze this month.

Market watchers predicted the rate freeze on concerns about surging mortgage loans and possible foreign fund outflow away from the country.

Mortgage loans increased rapidly amid record-low interest rates. As of end-March, home-backed loans extended by banks amounted to 418.4 trillion won (383 billion U.S. dollars), up 4.8 trillion won from a month earlier.

For the first three months of 2015, bank mortgage loans surged 11.6 trillion won, nearly nine times the 1.3 trillion won increase during the first quarter of 2014.

The BOK lowered its policy rate by a quarter percentage point in August and October last year and in March this year each, contributing mainly to a surge in the already-massive household loans.

Worries mounted over the possible foreign capital flow out of the country. The U.S. Federal Reserve is forecast to end its zero- rate policy within this year, which can trigger foreign fund exodus from South Korea to look for high-yield assets. Endi