"If we implement an exit strategy now, that could dampen the strength of an economic recovery," Yoon said in a keynote speech at a seminar. At its most recent monthly rate meeting, the central bank underscored its intention to raise rates as soon as February in the face of accelerating growth. But on Friday, Governor Lee Seong-tae Lee appeared to soften his tone on the policy outlook, vowing to keep accommodative policy for some time.
A senior economist the Organisation for Economic Co-operation and Development (OECD) also provided support for the government's stance on the timing of tightening policy, saying the recent rise in the won made the case for holding off.
"I would say it's not time yet. We have exchange rate appreciation," Randall Jones, head of Japan/Korea desk at OECD, told Reuters in Seoul when he asked if South Korea should raise rates or not. The won has risen 3.6 percent against the dollar so far this year. A firmer won usually cuts import prices, helping reduce inflationary pressure, while denting exporters, which have been leading an economic recovery.
Earlier in the day, a senior finance ministry official said local companies were asking the government to be cautious on withdrawing measures to protect the economy due to uncertainties including a stronger won. Yoon said the government plans to maintain expansionary fiscal and financial policy while preventing speculation in property markets and curbing inflation expectations. Following repeated calls from the government last week, including President Lee Myung-Bak, increasing number of analysts and traders now expect the central bank to hold rates through the first quarter.
Markets showed little reaction to his comments on Monday but one-year interest rate swaps have fallen about 25 basis points from a peak hit on January 4. A Reuters poll conducted after the policy review on January 8 - which was attended by a government official for the first time in a decade - showed seven out of 10 economists expected rates to start rising by the end of March. The central bank has kept interest rates at a record-low 2.0 percent for almost a year.