South Korea’s central bank took a wait-and-see approach in its key rate decision Thursday, amid mixed signals from local indicators and growing uncertainty over the US economy.

The seven members of the Bank of Korea’s monetary policy committee left its key rate at a record low of 1.25 percent, an eighth consecutive rate freeze since it lowered the rate by 0.25 percentage point in June last year. It was a unanimous decision.

BOK Gov. Lee Ju-yeol did not give any clear signal on the bank’s next move, saying the local economy was on course for moderate growth, with improved exports and facility investment offset by sluggish consumption.

However, he highlighted bigger uncertainties regarding whether the global economy would continue to improve, how strong the new US government’s protectionist stance would be, and how fast the Federal Reserve would raise interest rates this year.

“Exports are expected to perform better than we had projected in January, but the outlook is not that bright. Protectionism is growing not only in the US but other countries, and China could possibly impose trade sanctions (on us) due to political and diplomatic issues,” Lee said at a press conference in Seoul.

Lee dismissed concerns over the possibility of the US designating South Korea as a currency manipulator in the upcoming US Treasury Department’s biannual report in April.

He said South Korea is free from the assessment factors of the US Trade Facilitation and Trade Enforcement Act, which took effect in February last year.

However, the BOK will remain still cautious on a possibility that the US can add newly-detailed assessment factors in the Trade Facilitation Act, or apply the 1988 Omnibus Trade and Competitive Act instead in assessing foreign exchange policies of other countries, Lee said.

The problem of ever-growing household debt is also on the BOK’s watch list but recent growth of household debt mostly came from high-income, high-credit rated borrowers, he said.

“About 65 percent of the increased household debt were from those whose credit ratings were between 1 and 3, and high income earners whose income took up the top 30 percent,” Lee said.

“This does not mean that we’re dismissing the concern over household debt. With upward pressure on market interest rates and high volatility in the financial markets, we will cautiously monitor debts by low income earners and those who take out multiple loans.”

The BOK expects the consumer inflation is to remain at a level close to 2 percent, considering that agricultural products will see price stabilization in the spring and a weaker impact from rebounds of oil prices, Lee said.

Core inflation, which excludes food and energy prices, is likely to be in the mid- to upper-1 percent range, according to the BOK’s projection.

Lee said there was little possibility that the economy could suffer stagflation -- high inflation combined with stagnant demand -- because South Korea will likely achieve a mid-2 percent range growth this year.

However, the BOK was working to revise down the economy’s potential growth rate from the 2015 projection of 3 percent, due to slow growth, sluggish facility investment, demographic changes and slower-than-expected progress in productivity, he said.

By Kim Yoon-mi (yoonmi@heraldcorp.com)