South Korea freezes policy rates after new BOK chief's nomination

South Korea's central bank on Thursday froze its policy rate for 10 straight months as new Bank of Korea (BOK) chief was nominated earlier this month amid lack of factors to alter the rate. Outgoing BOK governor Kim Choong-soo, whose four-year term will end in late March, chaired his last monetary policy meeting, keeping the seven-day repurchasing rate on hold at 2.5 percent. Six other monetary policy board members agreed unanimously to the rate freeze, refraining from altering the rate since May last year when the central bank cut the benchmark borrowing costs by 25 basis points. The rate freeze was in line with market expectations. Kim was not expected to move the rate as the change could lay a burden on the future rate-setting direction of incoming BOK head Lee Ju-yeol. Lee was named on March 3 by President Park Geun-hye as the new BOK chief to replace Kim. Lee will chair next month's monetary policy meeting after going through the parliamentary confirmation hearing. Outgoing top central bankers tended to give no change to the existing monetary policy stance unless there is a big change in economic fundamentals or external circumstances. Governor Kim told reporters that it would be inappropriate to talk about the rate-setting direction because it can give a signal on future directions, declining to comments on whether the rate cut will be necessary to meet the government's fiscal stimulus drive. Kim, however, expected the South Korean economy to recover at a faster pace in the second half given factors at home and abroad, saying that inflation expectations were still staying at 2.9 percent and core inflation was higher than headline inflation. Consumer price inflation fell slightly to 1 percent in February from 1.1 percent the previous month due mainly to lower prices of petroleum products. Core inflation, which excludes farm goods and oil products, was unchanged at 1.7 percent in February. Upside and downside risks remained mixed as seen in the prior month, indicating no specific factors would move up or down the policy rate. Concerns lingered over possible volatilities caused by the U.S. Federal Reserve's tapering of its quantitative easing. The Fed scaled back its monthly bond purchases by 10 billion U.S. dollars in February to 65 billion dollars after cutting the same size a month earlier. The U.S. central bank will hold a regular policy meeting next week. Uncertainties mounted over the Ukraine crisis. The autonomous republic of Crimea will become independent from Ukraine if around 2 million residents vote in favor of joining Russia in a referendum due on March 16. China, South Korea's largest trading partner, posted a trade deficit of 22.98 billion dollars in February as exports declined 18.1 percent on an on-year basis. "The global economy will sustain its modest recovery going forward, but the possibility exists of its being affected by the change in global financial market conditions stemming from the U.S. Federal Reserve's QE tapering and by the weakening of economic growth in some emerging market countries," the BOK said in a statement. Positive factors existed. Production in the mining and manufacturing sectors increased 0.1 percent in January from a month earlier despite less working days caused by the Lunar New Year's holiday. The Lunar New Year's holiday moved to January this year from February last year, reducing business days by two days in January. Facility investment among companies declined 4.5 percent on month in January, but retail sales grew the most in 34 months, indicating a continued recovery in consumer confidence. Job creation expanded 835,000 in February from a year earlier, the highest increase in around 12 years. Seasonally adjusted employment rose 113,000 last month, keeping its growth trend for nine straight months. The BOK said in a separate statement that the South Korean economy is expected to maintain its uptrend in the coming months, which is in line with the strengthening of the paces of recovery in advanced economies and the improvement in domestic demand conditions. "It would be inevitable for the BOK to stay neutral in the monetary policy when upside and downside risks to the economy coexist," Lee Jung-joon, a fixed-income analyst at HMC Investment & Securities in Seoul, said before the rate-setting decision.