The Bank of Korea (BOK) has faced a growing dilemma over the course of its monetary policy amid worsening economic situations.
On one side, there are growing pressures for the BOK to raise the key rate as U.S. Federal Reserve signaled that it will continue its credit-tightening stance through additional rate hikes.
The widening gap between the two countries' interest rates could cause a capital flight leading to wild fluctuation of the Korean won against the dollar.
However, a series of negative indices, such as falling investment and a sluggish job market, are making it difficult for the BOK to follow in the footsteps of its U.S. counterpart. A rate hike could further dampen consumer spending and corporate investment.
Market observers had expected the central bank could raise the interest rate this month as a minority opinion first suggested a possible hike during the bank's monetary policy board meeting in July.
The opinion claimed the widening interest rate spread between Korea and the U.S. are the reason why the BOK should halt its wait-and-see stance that has lasted for eight months.
Disappointing economic data, however, seems to nudge the central bank's move fearing the key rate hike could deal a heavy blow to domestic demands and job market.
External factors such as the ongoing trade war between the U.S. and China is another reason behind the hesitance.
It is a stark contrast to the U.S. Federal Reserve's recent rate trend where it has already raised its base rate twice this year.
Federal Reserve Chair Jerome Powell said the Fed will raise the rate twice more this year, signaling the markets it will hike interest rates in September and possibly December.
Despite the Fed's hawkish stance, market observers said the BOK isn't likely to raise the key rate this month, but possibly later this year.
According to a survey studied by the Korea Development Institute, a majority of domestic experts said the central bank will raise its rate during the fourth quarter this year due to sluggish domestic demands.
It also lowered its outlook for the nation's economic growth rate by 0.1 percent to 2.9 percent.
"It is obvious domestic demands are on a downturn," said HI Investment & Securities analyst Park Sang-hyun.
"Also, the price index is not as high as the BOK previous anticipated. It's not time for the hike yet."
Citibank forecasted the key rate hike won't take place anytime soon.
"The U.S.-China trade dispute is expected to take a heavy toll on Korea's economy that depends relatively heavily on semiconductor exports," it said in its recent note.
"If the downturn psychology prevails for awhile, the BOK will have no option but to stay on the current policy rate."
The nation's central bank has maintained the wait-and-see approach for eight months since the 0.25-percent hike in November.
The trend, however, faced opposition as hawkish BOK monetary policy board member Lee Il-houng voted for increasing the rate by 0.25 percentage of a point last month.
BOK Governor Lee Ju-yeol also hinted about a possible hike, saying during a National Assembly hearing last month the central bank needs to reconsider its stance of the low-rate if Korea manages to maintain its planned growth rate while the inflation rate is contained under the 2-percent level.
The third quarter meeting to discuss the policy rate is due in August, with two more gatherings slated for October and November.
The biggest concern for the BOK is that the economy will deteriorate in the coming months.
The nation's job market remains sluggish despite trillions of won worth of extra government spending to ease the tightened job market.
According to the BOK, the monthly number of newly created jobs stood at around 100,000 for the third straight month in June, marking one of the lowest performances since the 2008 global financial crisis.
The number of new jobs in the backbone manufacturing sector declined amid restructuring in the labor intensive shipping and automobile industries and overall changes to industrial structure.
Earlier, the central bank lowered its estimates for job creation to 260,000 for the year from a previous projection of 300,000.
At the same time, household debt is steadily increasing and reached a record 1,468 trillion won in the first quarter of this year. A rate hike may place heavier burdens on borrowers.