U.S. Federal Reserve Chair Janet Yellen’s dovish remarks that it will go slow with interest rate increases lifted stocks and bonds in Seoul on Wednesday, strengthening the case for a domestic rate cut.

Bank of Korea Gov. Lee Ju-yeol said the country‘s monetary policy was supportive of economic recovery, but the economy may miss its growth target this year. 


The Korean benchmark stock index KOSPI rose to 2002.14 points, surpassing the 2,000-mark for the first time this year. Tech-loaded KOSDAQ was up 0.67 percent to close at 691.13.

The outlook of the U.S. borrowing costs is a key factor for Korea’s monetary policy. A rate hike there is believed to limit the scope for Korea to lower its own, as it fears an outflow of global funds in pursuit of higher yields in the U.S.

During a luncheon with journalists in Seoul, the BOK governor reiterated that the current interest rate was accommodative, but propped the door open to the possibility of a future rate cut, saying Asia’s fourth-largest economy may miss the BOK‘s annual growth forecast of 3 percent.

“On the surface, Korea’s monetary policy may look less accommodative than those of some advanced countries, but that doesn’t mean it is higher than the level appropriate for the economic conditions,” the top central banker said.

“So as for the future directions of the monetary policy, I would say my stance has not changed much since the press conference held earlier this month after the Monetary Policy Committee meeting,” he added.

The BOK-set base rate stands at 1.5 percent for the ninth month running. The central bank’s pause has been criticized by some economists and politicians who argue that Korea’s economy -- which in the first two months of this year showed worse-than-expected performance -- needs a shot in the arm to keep its fragile recovery momentum alive.

The central bank next reviews the rate and announces its revised economic forecasts on April 19.

By Lee Sun-young (milaya@heraldcorp.com)