February 9, 2015 / 10:47 AM / 3 years ago

South Korea says to continue with easy monetary, fiscal policy

South Korea's Finance Minister Choi Kyung-hwan speaks during an interview with Reuters before the G20 finance ministers and central bank governors meeting in Istanbul February 9, 2015.Osman Orsal (TURKEY - Tags: POLITICS BUSINESS)

ISTANBUL (Reuters) - South Korea's easy monetary and fiscal policy stance will likely continue this year while the country pushes ahead with structural reforms to ensure long-term growth, its finance minister told Reuters on Monday.

The government of President Park Geun-hye has identified labor, education and the financial and public sectors as the main areas to reform so that Asia's fourth-largest economy can avoid slipping into a protracted period of low growth.

"In the second half of last year, the interest rate in Korea was cut twice from 2.5 percent to 2 percent and this is already a historic low level," said Choi, who is attending a meeting of finance chiefs from the Group of 20 major economies in Istanbul.

"So this stance is likely to continue," he said, adding the country's economy would continue its steady recovery and inflation remain stable this year, although he did not explicitly comment on the direction of interest rate policy.

Insiders at the central bank and the finance ministry have recently expressed increased confidence in the strength of the local economy, undermining the case for a rate cut that had been widely anticipated late last year.

"I believe the question upon us is not about whether we should raise or cut interest rates. What is more important is structural reforms rather than focusing on rates," Choi said.

Choi called on the G20 leadership to beef up policy coordination, saying countries following monetary policies only to boost their own competitiveness would not be beneficial for the global economy.

"Now, as we move out of the global economic crisis, questions are being raised about G20 leadership," he said. "I believe, realistically speaking G20 is the only regime that is able to address the global economic issues today."

South Korea hosted a G20 summit meeting in Seoul in 2010.

The country's central bank is independent but the finance ministry is seen as having a strong influence over the direction of its monetary policy.

Touching on concerns that an expected U.S. interest rate increase later this year could spark capital flight out of emerging markets, Choi said South Korea had succeeded in differentiating itself from other countries.

He predicted continued foreign interest in the country's bonds from central banks and other long-term investors.

South Korea said on Friday it would ease some controls on foreign currency borrowing in preparation for possible market instability in the event of a U.S. rate rise, reversing a policy put in place in 2011 to discourage "hot money" inflows.

"The Korean economy has already shown that our fundamentals are different from other emerging markets, and we believe there's not going to be such a big impact," Choi said.

"In fact, in the market already there's been expectation of a U.S. rate hike, but rather than a currency depreciation, rather than an outflow of capital, we have seen an inflow."

Writing by Choonsik Yoo; Editing by Catherine Evans/Hugh Lawson

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