SEOUL: South Korea's central bank chief said on Tuesday the effects of its interest rate policy in supporting the economy have weakened in recent years due to cyclical and structural changes.
Asia's fourth-biggest economy was now more dependent on exports for growth than before as it, along with the global economy, was experiencing a combination of low growth and low inflation, he said before a group of lawmakers.
"(The central bank's role) in helping recover the economy's momentum is limited through the monetary policy," Bank of Korea Governor Lee Ju-yeol said, citing a possible decline in the economy's growth potential due to structural effects.
In addition to the central bank's attempts to support growth through policy easing, Lee also urged for a stronger push to ease regulations.
Lee said the won was facing a conflicting set of external factors including a possible rise in US interest rates over the coming months and more easing steps from European and Japanese policymakers.
When asked later by reporters to comment on the rising won, as a factor for the central bank's policy consideration, Lee reaffirmed his previous view opposing interest rate changes with the aim of influencing the won's value.
"Foreign exchange rates are of course influenced not only by interest rates but by other factors," Lee said.
"Foreign exchange rates should be set by market forces." South Korean and Japanese firms compete in key export markets for products ranging from cars to electronics goods and the recent rise in the won's value against the yen has been blamed for the poor earnings of South Korean firms.
The yen/won pair, set by each currency's movement against the US dollar, was last quoted at 9.6582, representing a 3.7 percent gain so far this year for the won against the yen and near the strongest level in six years for the won.
The remarks came as investors price in a significant chance for a further cut in the policy interest rate as early as next month after a rate reduction in August, when its decision was widely viewed as being influenced by government pressure. The Bank of Korea held its policy steady at the Sept. 12 meeting and provided no clear indication on its future policy direction. It next reviews policy on Oct. 15.
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