Korea’s central bank should raise its policy rate to help cement its commitment toward price stability in Asia’s fourth-largest economy, a state-run think tank said Thursday.

The Korea Development Institute said the Bank of Korea should “normalize” its rate policy in a bid to secure market trust, and needs to deliver a signal to the market that price stability is its top priority.

“The authorities are urged to normalize macroeconomic policies and need to guard the economy against growing uncertainties at home and abroad,” the KDI said in a report.

Earlier this month, the central bank left the key interest rate unchanged at 3.25 percent for the ninth straight month, as it maintained a wait-and-see stance to assess risks to inflation and growth, such as rising oil prices.

The report also said the country should redouble efforts for fiscal soundness as the nation’s debts surged to 393 trillion won ($348 billion) in 2010 from 299 trillion won in 2008.

In order to avert a fiscal crisis like the eurozone debt problem, state-run corporations should improve their financial health by reducing mounting debts, and tax bases should be extended, it said.

The KDI also stressed that the country’s financial regulator should beef up its supervisory system on non-banking institutions such as savings banks in order to help shield the country from a potential financial crisis. 

(Yonhap News)