South Korea's central bank on Thursday froze its benchmark interest rate at the record-low level in its first rate-setting meeting under the new government.

Bank of Korea (BOK) Governor Lee Ju-yeol and six other policy board members decided to keep the seven-day repurchase rate on hold at an all-time low of 1.25 percent.

It was in line with market expectations. According to a Korea Financial Investment Association (KFIA) survey of 200 fixed-income experts, 100 percent predicted the rate freeze.

The prediction was based on the launch of the new government. President Moon Jae-in took office after winning a landslide victory in the May 9 presidential by-election.

Any new government tended to refrain from raising its policy rate in an early phase as higher interest rate could lead to hurt growth momentum of the economy.

Exports, which account for about half of the South Korean economy, posted a double-digit expansion in recent months, but private consumption remained lackluster amid massive household debts.

The government-led corporate restructuring in the troubled shipbuilding and shipping industries was underway, weighing down on the economic recovery.

Pressures, however, were growing on the BOK to hike its policy rate on expectations for the U.S. Federal Reserve to raise its benchmark rate as early as June.

The Fed lifted its policy rate to a range of 0.75-1.00 percent, coming closer to the BOK's benchmark rate of 1.25 percent.

If the BOK misses the timing of a rate increase, foreign capital can abruptly flow out of the South Korean financial market.

The prolonged low-rate policy continued to expand the already massive household debts. The BOK cut the policy rate from 3.25 percent in July 2012 to the current level in June 2016.

The massive household debts discouraged consumers from spending money. The Fed's rate increase resulted in higher market rates here, raising the debt-serving burden for households.

Yields on the three-year government bonds rose 1.5 basis points to close at 1.691 percent Wednesday. The return on the 10-year bonds gained 2 basis points to 2.269 percent, and the five-year yields added 2.2 basis points.

Expectations were running high for the new government's economic policy that could lead to the recovery.

The Moon Jae-in government planned to draw up a supplementary budget later this year, which is focused solely on job creation.

President Moon installed a so-called bulletin of labor market conditions in his office to keep his campaign pledge of creating jobs.

Domestic financial markets priced in on expectations for the new government. South Korean stocks kept a record-breaking momentum for the third consecutive day to Wednesday.

The BOK said in a statement that though consumption growth was still low, economic growth momentum grew on improved exports and investment, predicting a better-than-expected economic expansion this year compared with the outlook unveiled in April.

Last month, the central bank raised its growth outlook for the economy from 2.5 percent to 2.6 percent. The next growth forecast will be revised in July.

The bank said it will keep an accommodative monetary policy given the expectations for low inflationary pressure from the demand side that would offset the faster economic growth.