South Korea's top central banker on Monday stressed a rising role of central banks to achieve sustainable growth following the global financial crisis, heralding a gradual pace of rate hikes.
"After having gone through the financial crisis, expectations escalated among the general public for the proactive role of the central bank in pursuing not just its primary mandate of price stability, but also for financial stability and sustainable growth, " Bank of Korea (BOK) Governor Lee Ju-yeol said in an opening speech for a conference held in the BOK headquarters.
As sustainable growth cannot be achieved without financial stability, the central bank has accordingly become an integral part of macro-prudential policy frameworks in most major economies, Lee said.
His comments can be seen as a signal of hiking the policy rate at a gradual manner as expectations mounted for the rate hike as early as later this year.
On May 4, Lee made his hawkish remarks, saying that the future direction of the policy rate looked hard to go downward given the expected growth rate of 4 percent in 2014.
According to the BOK minutes for the April 10 policy meeting, one monetary policymaker said the BOK needs to prepare for future rate hikes to normalize the policy rate at an appropriate time when the economic recovery is visible.
South Korea's policy rate has been anchored at 2.5 percent since May 2013 when the central bank lowered borrowing costs by 25 basis points.
Governor Lee stressed the need to seek solutions to more fundamental problems that could stand in the way of sustainable growth such as population aging and global imbalances, according to the pre-released speech.
Population aging, which is proceeding at a rapid pace around the world, will likely weaken the growth potential through the reduced share of the economically active population, languid investment and the erosion of fiscal soundness, Lee said.
To resolve the global imbalances, which caused the global financial crisis, efforts should be kept up for structural reform at the individual-country level and international cooperation and policy harmonization will be needed, Lee said.