Governor Kim Choong-soo and monetary policy board members decided to freeze the 7-day repo rate at 3.25 percent at the March rate-setting meeting. The Bank of Korea (BOK) has lifted the borrowing costs by a total of 125 (bps) in five steps since July 2010 in a bid to curb inflation.

The decision was in line with market expectations as experts predicted the rate freeze due to conflicting factors such as lingering downside risks to the economy and the possible higher inflationary pressures amid rising oil prices.

The South Korean economy saw some economic indicators improved on seasonal factors, but concerns remained over the downside risks to the economy. Output in the mining and manufacturing sectors unexpectedly grew 3.3 percent in January from a month earlier, but the industrial output dropped 2 percent on an on-year basis, the first decline in 31 months.

Exports, which account for more than half of the Asia's No.4 economy, recovered its growth trend in February, but it was mainly attributed to a one-off factor such as growing working days caused by the movement of the Lunar New Year holiday. The working-day adjusted, combined exports for the first two months of this year decline 0.7 percent on an on-year basis.

The country's consumer price inflation slowed to 3.1 percent in February, nearly the midpoint of the BOK's inflation target band of 2-4 percent, but it was too early to lower the guard against inflation as inflation expectation, a gauge of future demand-side inflationary pressure, remained at a high level. Inflation expectation came in at an annual rate of 4 percent last month.