[THE INVESTOR] The head of South Korea’s central bank has emphasized the need for an accommodative monetary policy to cope with a drawn-out economic slump but cautioned against its potential adverse impact causing financial instability.

“It’s necessary to implement monetary policy in a direction that supports the recovery of a growth trend and also to pay keen heed to risks to financial stability,” Bank of Korea Gov. Lee Ju-yeol said in an international forum on July 19.

 

He cited the vulnerability of a “small open economy” to external impact.

South Korea’s economy, the fourth largest in Asia, is categorized as a small open economy for its heavy dependence on exports and massive foreign investments in its equity market.

“(South Korea) should strengthen efforts to reduce the negative impact of external factors on domestic finances and the economy,” Lee said.

He stressed the importance of structural reform and international cooperation.

“Economies of countries with strong fundamentals get away from outside impacts relatively quickly,” he pointed out. “There is a limit to resolving the various troubles each economy faces only through monetary policy.”

(theinvestor@heraldcorp.com)