SEOUL, Feb. 21 (Yonhap) -- South Korea's central bank should support economic growth in managing its rate policy while flexibly running its inflation targeting scheme, as the Korean economy is facing a low-growth trend, its chief said Thursday.
Bank of Korea (BOK) Gov. Kim Choong-soo said that as the monetary policy is "not a panacea," the central bank needs to manage its rate policy in a way to harmonize the direction of a set of the government's macroeconomic policies.
"To support the economic recovery and the economic growth potential, it would be desirable for the rate policy to be managed in a way to harmonize the government's active macroeconomic and regulatory policies," Gov. Kim said in an economic forum.
His remarks came amid split views about whether the BOK would cut the key interest rate this year, which has been frozen at 2.75 percent for the fourth straight month since November.
The governor earlier said that when monetary and fiscal policies are coordinated, the effect of such a policy mix would increase.
Market players' bet on a rate cut was somewhat reduced this month, compared with January, due to growing signs of economic recovery.
But more analysts are still anticipating a rate cut in the first half, saying that the BOK would reduce the borrowing cost as a symbolic gesture of falling in step with the government to prop up the growth.
Incoming President Park Geun-hye, who will take office on Monday, has offered key campaign pledges to support troubled smaller firms and debt-stricken households.
Bond yields fell as market players interpreted his remarks as a signal for a rate cut. The yield on three-year Treasuries declined 0.03 percentage point to 2.68 percent and the return on five-year government bonds shed 0.03 percentage point to 2.79 percent.
The governor also said that the BOK needs to actively join the global policy coordination by taking into account spillover effects of the monetary policy beyond the national boundary.
"Without global policy coordination, it is increasingly more difficult for a central bank to achieve its intended policy goal," Kim added.
"For sustainable growth, each central bank should promote policy coordination and seek global equilibrium, refraining from focusing on impacts of its monetary policy within its national boundary."
The remarks came as powerful monetary easing by advanced economies including the U.S. and Japan has resulted in cheaper money flowing to emerging countries, putting upward pressure on the currencies of developing nations.
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