The Bank of Korea (BOK) left policy unchanged for a fourth month this week, prompting criticism from market watchers who say the central bank must urgently implement monetary stimulus to lift Asia's fourth-largest economy out of the doldrums.
After leaving the benchmark policy rate at 2 percent on Tuesday, central bank governor Lee Ju-yeol said that interest rate cuts were no longer as effective in impacting the economy.
But with the country on the verge of entrenched deflation, the International Monetary Fund and HSBC are some of the voices calling on the BOK to lower rates in the coming months.
"The likelihood of a rate cut next month increases if economic data signal significant downside risks to economic growth. The central bank also noted weak domestic demand and suppressed private sentiment and we think these pose downside risks to the central bank's 2015 GDP growth forecast of 3.4 percent," said HSBC economist Ronald Mann in a report on Tuesday.
Mann is anticipating a 25-basis point rate cut in March, followed by a second cut in the third-quarter.
"The short-term bias should be for the BOK to cut rates," added DBS in a note. "We expect the benchmark repo rate to fall by 25 basis points to 1.75 percent by the end of the first quarter," the bank said in a recent report.
South Korea's economy grew at its slowest quarterly pace in two years during the October-December period, with growth nearly halving from the quarter before. Meanwhile, consumer prices grew 1.3 percent in 2014, falling below the average of G7 countries for the first time in eight years. Furthermore, producer prices are at their weakest level since the global financial crisis.