* S.Korea fin min says possible steps for FX soundness
* FX steps would apply to all banks
* Not considering direct FX controls
* Too soon to raise rates
By Cheon Jong-woo and Lee Shin-hyung
SEOUL, Jan 28 (Reuters) - South Korea's Finance Minister Yoon Jeung-hyun said more steps could be taken to enhance the soundness of foreign currency assets if needed to protect the economy from capital flight.
In an interview with Reuters on Thursday, he also said it was still too soon to raise interest rates from the current record low of 2.0 percent, where they have been for 11 months.
"We can strengthen parts of measures to bolster soundness. If we implement any, local and foreign banks will be treated the same," Yoon said.
South Korea in November introduced measures to tighten controls over foreign exchange liquidity, mostly aimed at local banks, to prevent a repeat of the capital outflows which hit the economy hard at the height of the global financial crisis more than a year ago. [ID:nSEO238632]
In the interview, Yoon said there were no plans to impose direct controls on foreign currency flows or on foreign currency liquidity at foreign bank branches.
"Definitely, we don't have such an idea. We should not have allowed them to open branches here if we were going to impose such regulations," said Yoon, who was the top financial regulator for three years from 2004.
NO RATE HIKE YET
He reiterated the government's position that an interest rate hike now is premature, saying higher rates would hurt private consumption, investment and the job market.
Analysts say his ministry has put heavy pressure on the central bank to keep rates on hold despite concerns of creating an asset price bubble and inflation.
"Rates are the most important and the last among exit strategies. The government has a firm stance that now is not a time to raise interest rates yet," Yoon said.
Other countries such as China and the United States are expected to maintain expansionary macro economic policy this year, he added.
The central bank holds its next meeting on Feb. 11 to review interest rates which have been stuck at a record 2.0 percent low for 11 months.
Its governor Lee Seong-tae appeared to soften his hawkish tone earlier this month by vowing to keep an accommodative policy for some time. [ID:nTOE60E01D]
LEE URGES CAUTION
Echoing his finance minister's concerns, President Lee Myung-bak urged members of the Group of 20 economic powers to tread with caution before unwinding stimulus measures brought in to cope with a deep financial crisis.
"As the global economy finds its feet again, each G20 member country will need to consider carefully how it will implement its exit strategy taking account of local economic conditions," he told the World Economic Forum in Davos.
There are concerns that South Korea's fast recovering economy may be losing some momentum as the effect of the global stimulus starts to fade. Another worry is that giant neighbour China may start to tighten policy to calm its economy.
Yoon added that the government needed to prepare measures to offset the impact of any tightening measures by China, South Korea's biggest export market.
"China is our largest export market and any policy may have a big impact on us. We need to keep a close eye (on it) and we have to prepare in advance for when the country tries to change any policy."
But the impact from the Beijing's recent move to curb lending in the global financial markets would be limited as the measures had been already expected, Yoon said.