South Korea's central bank chief said Thursday that monetary policy alone cannot stimulate Asia's fourth-largest economy, stressing that the weak investment sentiment stems mainly from structural problems.

Bank of Korea (BOK) Governor Lee Ju-yeol made the remark to reporters in Washington as the BOK is set to decide its key interest rate for October next week. Lee was in Washington to attend annual meetings of the International Monetary Fund (IMF) and the World Bank Group.

"I believe there definitely is a need for stimulating consumption and investment," Lee told reporters. "Fiscal and monetary policy can have some impacts. But as the current slump in consumption and investment was caused mainly by structural effects, I think we won't be able to achieve intended results unless both monetary and structural policies are combined."

Market watchers have said the BOK is expected to slash the key rate due to a slow recovery in the country's economy and volatile foreign exchange rates. In August, the central bank lowered the base rate to 2.25 percent from 2.5 percent, the first rate reduction in 15 months, to help boost the economy.

Lee said that the August cut helped improve consumption sentiment among individuals a little but failed to raise corporate investment sentiment. That's because the weak business investment sentiment comes mainly from structural problems, he said.

The central banker also said that monetary policy can have rather quick effects on efforts to curb inflation, but when it comes to stimulating the economy, its effects are limited and come late. Rate cuts could also lead household debts to expand and foreign capital to leave the country.

Lee said South Korea's economic growth rate is expected to be around mid-3 percent levels for this year.

In New York, Finance Minister Choi Kyung-hwan told reporters that South Korea's economy is expected to post a growth rate in the high 3 percent range this year and in the 4 percent range next year. Such stable growth makes the country an attractive investment destination, he said.

Choi stopped in New York for an investor relations meeting about South Korea's economy on his way to Washington for the annual IMF and World Bank meetings. It was the first time in four years that South Korea has held an IR meeting in New York.

Corporate investment is key to the sustainable growth of South Korea's economy, and the government is determined to push forward with regulatory and labor market reforms to make the country a better place to do business, Choi said.

He assured potential investors that there will be no massive capital outflows from South Korea even if the U.S. raises its interest rates faster than expected, adding that Korea will become a leading player in pulling the global economy out of the low growth trend. 

Explaining the stimulus measures that he has taken since his inauguration in mid-July, including 41 trillion won worth of fiscal spending, Choi said that Korea's economy will be able to grow 3.7 percent this year and that the growth rate is expected to rise to 4 percent next year. 

He also cited the recent decision by Standard & Poor's to upgrade its rating outlook for Korea from stable to positive, saying that its sovereign rating on Korea, currently at "A+," could also be upgraded soon. (Yonhap)