S.Korea's top c.banker voices reservations about rate cut effect

South Korea's top central banker on Tuesday voiced his reservations about additional rate cut effect, defying growing expectations for more accommodative monetary policy.

Bank of Korea (BOK) Governor Lee Ju-yeol told a press conference after the monthly rate-setting meeting that the interest rate policy effect will be limited when uncertainties are running high in the financial markets at home and abroad, stressing the importance of "timing" in altering policy rates.

The BOK froze its benchmark seven-day repurchase rate at an all-time low of 1.5 percent, holding on to the rate freeze position for 10 straight months.

Lee opened a door for further rate cuts, but he noted that the central bank should maintain a room for further rate cuts in case of worse situations.

The governor attributed the current low growth of the South Korean economy to structural factors rather than cyclical problems, saying that fiscal policy and corporate structuring should be in tandem with monetary policy. His remarks indicated the urgent call for structuring process and fiscal stimulus.

Lee also refuted any demand for the so-called "Korea-version quantitative easing,"which the ruling Saenuri Party suggested as one of its main economic pledges in the April 13 parliamentary election.

The ruling party, which was unexpectedly defeated in general elections, proposed the revision of a relevant bill to allow the BOK to purchase mortgage-backed securities (MBS) and bonds sold by the state-run Korea Development Bank (KDB) in charge of supporting business financing and industrial activity.

Under the revised bill, the BOK could be allowed to purchase such bonds and provide money with banks and the KDB, which will, in turn, offer the money to companies and households.

The Korea-version QE is different from QEs adopted in the United States and Europe, which begin to print money only after zero-rate policy rates have little impact to reinvigorate an economy. Endite