South Korea's top central banker said Tuesday that liquidity should be properly funneled into the sectors that need funds, stressing the role of the bank's credit-supportive policy.
"Even if liquidity is ample, it is not effective if such funds do not flow into the real economy," Kim Choong-soo, governor of Bank of Korea (BOK), said before holding a meeting with heads of six small businesses.
The governor said that in that sense, central banks should manage credit policy as a supplementary policy tool, along with its main monetary policy.
His remarks came as BOK is considering overhauling its soft loan scheme to smaller firms.
In April, BOK decided to raise the cap for its soft loans to smaller firms to 12 trillion won (US$10.6 billion) from 9 trillion won.
According to the central bank, the participants said that local banks should not excessively curtail lending to smaller firms when the economy slows down.
Banks tend to increase lending when the economy is booming, but they are wary of extending loans during the economic slowdown, leading smaller firms with low creditworthiness to face liquidity shortages.