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Expectations for additional interest rate cuts in South Korea mounted as one monetary policymaker favored further monetary easing after the rate freeze decision for eight straight months.
Bank of Korea (BOK) held a regular monthly rate-setting meeting on Tuesday, deciding to freeze the benchmark 7-day repurchase rate at a record low of 1.5 percent for eight months in a row.
It was in line with market consensus as seen in a survey of the Korea Financial Investment Association showing that almost all of fixed-income experts had predicted the rate on hold in February.
BOK Governor Lee Ju-yeol and five other monetary policymakers voted in favor of rate freeze, but one member, Ha Sung-Keun, claimed the need for a rate cut by 25 basis points.
Ha favored a rate cut in April and May last year, and it led to another 25-basis-point rate cut in June of the year to an all-time low of 1.5 percent.
A minority opinion from the BOK's rate-setting meeting tends to serve as a sign of policy alteration in coming months.
Governor Lee sought to ease excessive expectations for rate cuts during his press conference after the rate-setting meeting, saying he's worried about possible side effects from another rate cut as seen in the cast of Japan that introduced negative interest rate.
Lee said under external uncertainties, another rate cut may not lead to a clear benefit to an economy, stressing that monetary policy is not a cure-all capable of solving structural problems.
Expectations emerged recently for the BOK's additional rate cuts following pessimistic economic indicators, rising geopolitical risks and a growing trend of monetary easing in advanced economies.
The BOK cut the policy rate by 25 basis points in March and June each last year, after lowering it by the same margin in August and October 2014 respectively.
South Korea's exports, which account for about half of Asia's Number 4 economy, tumbled 18.5 percent in January from a year earlier, posting the biggest month reduction in more than six years.
The country's private consumption, which grew more than 1 percent in the last two quarters of last year, is feared to tumble in the January-March quarter of this year as consumption tax cuts ended in 2015.
The government decided to extend the tax cuts by June, but it remains to be seen whether the tax break could boost consumption as seen in 2015.
Recent global market tumble, caused by concerns over slowdown in major economies, bolstered rate cut expectations. Many of South Korean fixed-income experts predicted a BOK rate cut in March or April.
Japan's central bank began imposing negative interest rates on bank deposits to counter its lackluster economy, while Europe is expected to further ease the already accommodative monetary policy.
The United States is expected to delay its rate hike following the first increase in December last year in about a decade.
Geopolitical risks, which would affect credibility of the South Korean economy, surged on the Korean peninsula as the Democratic People's Republic of Korea (DPRK) launched a long-range rocket on Feb. 7 following the fourth nuclear test on Jan. 6.
Despite those negative factors, South Korea's central bank is expected to take caution over further rate cuts as additional monetary easing may trigger a foreign capital exodus from local financial markets.
Sentiment in global stock markets recently weakened due to sharp swings between gains and losses in the U.S., European and Japanese markets.
Massive household debts in South Korea have kept a record-breaking trend amid the record-low borrowing costs, making it difficult for the BOK to cut rates further.
Bank household loans growth slowed in January, an off-season month for housing transactions due to cold weather, but it may begin to grow faster during the upcoming spring season.
