S. Korea freezes interest rates at record low for 2 months

South Korea's central bank froze its policy rate at a record-low level Thursday, keeping a wait-and-see position for two months amid mixed factors, including the expected rate hike in the United States and the lingering effect from the outbreak of Middle East Respiratory Syndrome (MERS).

Bank of Korea (BOK) Governor Lee Ju-yeol and six policy board members decided to keep the benchmark seven-day repurchase rate on hold at an all-time low of 1.5 percent.

It was in line with market expectations. According to a Korea Financial Investment Association survey of 113 fixed-income experts, 98.2 percent predicted the rate freeze.

Downside risks to the economy remained as the MERS aftermath still rattled private consumption and the service industry amid the global economic downturn.

Exports, which account for about half of the Asia's No. 4 economy, dipped 3.3 percent in July from a year earlier, maintaining a downward trend for seven months in a row.

The South Korean government declared a de-facto end of the MERS crisis last month, but the service sector and private consumption remained lackluster. The finance ministry said in its monthly economy report that the MERS effect still dragged down the domestic economy.

Despite the soft export growth and the faltering domestic demand, the BOK was widely expected to refrain from altering the rate for the time being as the U.S. Federal Reserve would raise its zero-level policy rate by the end of this year.

If the BOK lowers its policy rate further, foreign capital could flow out of South Korea's financial market after the Fed's rate hike. Central banks of Australia, India and Thailand froze policy rates earlier this month on expectations for the Fed's monetary tightening as early as September. Endi