South Korea’s central bank chief on Monday voiced more clearance to a monetary policy aimed to prop up the economy, deepening the flattening trend in the yield curve with increased bets in the market for a rate cut in the making.

“The monetary policy direction will be kept accommodative to support the stable growth of the Korean economy and take consideration of the incoming data on growth, inflation and financial market conditions,” Lee Ju-yeol, governor of the Bank of Korea (BOK) said at a parliamentary hearing on macroeconomic affairs on Monday.

He nevertheless added it was premature to consider a rate cut “for the time being” amid lingering concerns about financial imbalances stemming from the massive household debt.

Still, the bond market took Lee’s comment as further signal for a rate cut, extending the rally of last week after he talked of “increased maneuvering room” following the U.S. Federal Reserve’s indication of a pause in the rate increases.

Lee in his second term had been consistent in his rhetoric on the monetary policy, with growth focus matched by rate cuts while mention of financial imbalance was followed up with the two hikes since November 2017.

The benchmark three-year government bond yield closed Monday at 1.770 percent, down 3.0 basis points from Friday’s session and inching closer to the policy rate of 1.75 percent. The curve on the longer-dated yield fell more steeply. The five-year bond slipped 4.2 basis points to 1.785 percent and the 10-year bond down 4.6 basis points to 1.888 percent.

The steeper fall in the long-dated government notes suggests heavy buying of bonds whose yields can move lower and stronger expectations for gains in bond investment, as the central bank cannot afford an inversion in the yield curve.

International organizations have been advising Seoul to take more aggressive fiscal and monetary actions to avoid a recession as escalating downside risks from overseas aggravate the already fragile domestic economy.

Korea’s gross domestic product grew at a 2.7 percent annual rate in 2018, its slowest growth pace in six years. The outlook is even bleaker this year, with the BOK and OECD projections set at 2.6 percent and Moody’s as low as 2.1 percent.

Signs of a global economic slowdown, especially in its biggest trading partner China, are taking a heavy toll on Korea’s export-reliant economy.

In February, Korea saw its exports slide for the third straight month, the longest losing streak since July 2016. Semiconductor exports, which account for about one-fifth of the country’s total shipments, plummeted 24.8 percent last month amid subdued demand and rapidly falling prices. Other mainstay items like petrochemicals and petroleum products also faced a 14 percent decline.

By Lee Yu-sup and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]