Seoul, Aug 13 (IANS): South Korea's central bank froze its policy rate at a record low level on Thursday.

The bank will hold onto this wait-and-watch position for two months amid the expected rate hike in the US and the lingering effect from the outbreak of Middle East Respiratory Syndrome (MERS), Xinhua reported.

The Bank of Korea (BOK) governor, Lee Ju-yeol and six policy board members decided to keep the benchmark seven-day repurchase rate on hold at an all-time low of 1.5 percent.

It was in line with market expectations. According to a Korea Financial Investment Association survey of 113 fixed income experts, 98.2 percent predicted the rate freeze.

Downside risks to the economy remained as the MERS aftermath still rattled private consumption and service industry against the backdrop of the global economic downturn.

Exports, which account for about half of Asia's No. 4 economy, dipped 3.3 percent in July from a year earlier, maintaining a downward trend for seven months in a row.

The South Korean government declared a de facto end to the MERS crisis last month.

Despite the faltering domestic demand, the BOK was widely expected to refrain from altering the rate for the time being as the US Federal Reserve would raise its zero-level policy rate by the end of this year.

If the BOK lowers its policy rate further, foreign capital could flow out of South Korea's financial market after the Fed's rate hike.

Central banks of Australia, India and Thailand froze policy rates earlier this month on expectations of the Fed's monetary tightening as early as September.