Roundup: S.Korea freezes policy rate for 9 months amid rising expectations for cuts

South Korea's central bank on Thursday froze its policy rate at a record low for nine straight months amid rising expectations for further rate cuts, caused by the worsening of recent economic indicators.

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

It was in line with market consensus, but expectations increased for additional rate cuts due to lackluster exports and slowing industrial activity.

According to a Korea Financial Investment Association (KFIA) survey of 200 fixed-income experts, 72.5 percent predicted the rate freeze in March. It was much lower than 99 percent tallied in February.

Rate cut hopes were triggered by one of the BOK board members who cast a dissenting vote in February in favor of an additional cut by 25 basis points. The member cited falling exports and the weakening of domestic demand as reasons for more accommodative monetary policy.

BOK policymaker Ha Sung-Geun favored a 25-basis-point rate cut for two straight months in March, furthering such expectations.

Exports, which account for about half of the export-driven economy, declined 12.2 percent in February from a year earlier, keeping a downward momentum for 14 months in a row.

South Korea's industrial production shed 1.2 percent in January on a monthly basis, causing concerns about private consumption as well as exports.

Reflecting the rate cut expectations, yields on three-year Korean Treasury Bond declined 1.1 basis points from the previous day to settle at 1.470 percent on Wednesday, falling for the third straight sessions.

The one-year yield 1.3 basis points to 1.471 percent, but yields on 10-year government bonds inched up 0.5 basis points to 1.850 percent on expectations for economic recovery coming from further rate cuts.

Meanwhile, concerns remained about further rate cuts in consideration of massive household debts and possible foreign capital exodus from local financial markets.

Record-low interest rates bolstered up real estate market and helped prop up the faltering South Korean economy, but it increased household debts at a fast pace.

Housing transactions in South Korea reached 1,193,691 in 2015, up 18.8 percent from a year earlier. It was the fastest yearly increase in the country's history. Recovering home market resulted in rising construction investment and its consequent positive effect on relevant industries.

South Korea's real gross domestic product (GDP) expanded 2.6 percent in 2015. The growth rate stayed below 3 percent, but it should have been lower without accommodative monetary policy and fiscal stimulus packages.

However, household credit surpassed 1,200 trillion won (about 1 trillion U.S. dollars) in 2015, keeping a record-breaking trend. It was up 121.7 trillion won from a year earlier. The household credit includes household debts extended by banks and deposit takers as well as purchase on credit.

Possibility for foreign capital exodus remained due to geopolitical risks and worries about global economic slowdown that can prompt foreign funds to flow of out South Korea. Additional rate cuts can serve as a trigger for foreign funds outflow.

Geopolitical risks mounted on the Korean peninsula after the Democratic People's Republic of Korea (DPRK)'s latest nuclear test and long-range rocket launch.

Pyongyang threatened pre-emptive nuclear strikes against Seoul and the U.S. mainland as the two allies kicked off their largest-ever joint annual war games from Monday through late April. Enditem