Bank of Korea (BOK) Governor Rhee Chang-yong and other monetary policymakers decided to leave the benchmark seven-day repurchase rate unchanged at 3.50 percent. The decision was made unanimously.
It was in line with market expectations. According to the Korea Financial Investment Association's poll of 100 fixed-income experts, 98 percent predicted the rate freeze this month.
The BOK had put the rate on hold in January and February this year and seven times last year after delivering policy rate hikes by 3.0 percentage points between August 2021 and January 2023.
The consecutive rate freeze came amid the remaining uncertainties such as the still high inflation and the massive household debts.
Governor Rhee told a press conference that whether consumer price inflation can reach 2.3 percent by the end of this year would be significant, saying that if the inflation stays above 2.3 percent, it could be difficult to cut interest rates in the second half of this year.
Consumer prices gained 3.1 percent in March from a year earlier, staying above 3 percent for the second successive month. It continued to top the BOK's mid-term inflation target of 2 percent.
After peaking at 6.3 percent in July 2022, the headline inflation had been on the decline and hit the bottom at 2.4 percent in July last year.
Inflationary pressure hovered in recent months on the back of the spike in agricultural products price, which surged more than 20 percent for the second straight month through March.
The BOK said in a statement that the consumer price inflation stayed at 3.1 percent in February and March due to an increase in agricultural product prices and global oil prices.
The consumer price inflation was expected to gradually moderate, but uncertainties over the inflation outlook grew on the back of geopolitical risks, global oil prices and agricultural product prices, the BOK noted.
Higher borrowing costs increased the debt-servicing burden for households struggling with record-high debts that would negatively influence domestic consumer spending.
Debts owed by households to deposit-taking banks shrank 1.6 trillion won (1.2 billion U.S. dollars) in March, marking the first reduction in 12 months on weaker demand for mortgage loan.
Despite the March shrinkage, the household lending grew 3.6 trillion won (2.6 billion dollars) in the January-March quarter.
Concerns lingered over a broad gap between the South Korean and the U.S. interest rates.
The U.S. Federal Reserve froze its target range for the federal funds rate at 5.25-5.50 percent for the fifth successive time in March.
Expectations shrank for the Fed's three rate cuts later this year following the recent announcement of higher-than-expected economic indicators in the United States, such as consumer prices and employment.
The South Korean economy maintained a growth momentum, affected mainly by export recovery.
Export, which accounts for about half of the Asian economy, continued to increase for the sixth consecutive month through March on a yearly basis thanks to strong demand for locally-made tech products such as semiconductors.
Output among manufacturers expanded 3.4 percent in February compared to the previous month, with production of semiconductors going up 4.8 percent.
Retail sale, which reflects private consumption, tumbled 3.1 percent in February from a month earlier owing to high inflation and record household debts.
The BOK forecast that export would likely increase greater than expected, supported by buoyancy in the IT industry amid a modest recovery in consumption.
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