By Kim Tae-gyu
Staff Reporter
China's pullback from stimulus efforts, which were geared toward grappling with the financial distress, is likely to affect Korea in deciding when to employ its own exit strategy.
China, Korea's largest trading partner, began to withdraw its expansionary policies this week with its central bank raising lenders' reserve requirement ratio by 50 basis points.
Korea has delayed the adoption of an exit plan as uncertainties still remain ― the country has kept its benchmark interest rate at a record-low 2 percent during the past year while pumping money into the economy via generous expenditure.
"The Chinese measure demonstrates that the country is now scaling back part of its stimulus policies and this will obviously affect Korean policymakers," professor Yun Chang-hyun at the University of Seoul said.
"In particular, Korea has been dubbed as one of the fastest nations recovering from the economic slump. In this climate, it will face rising pressures to deploy an exit plan," he said.
You Jong-il, a researcher at the state-run Korea Development Institute, concurs.
"In principle, the monetary policy of a country need not be influenced by those of others. Along the same lines, Korea does not have to factor in the Chinese stance that much," You said.
"However, things are different in reality. The hike of the Chinese banks' reserve ratio has a shot at increasing political pressure that Korea will have to follow suit since its economy is doing well," he said.
In contrast, some experts contend that China's policy change will not necessarily have a huge impact on Asia's fourth-largest economy.
"China chalked up almost double-digit growth last year even amid the peak of the economic turmoil. In comparison, Korea remained flat in 2009. Accordingly, the two countries cannot have the same monetary policies," Hyundai Research Institute research head Yu Byoung-gyu said.
"We do not think the Bank of Korea (BOK) will be pressed to jack up the key interest rate because of what China does. Rather, it will pay more heed to the government, which opposes the early adoption of any exit plan," Oh said.
"Have a look at the Ministry of Strategy and Finance (MOSF), whose vice minister participated in the rate-setting meeting of the BOK. The administration gave a strong signal that it is opposed to the immediate elevation of borrowing rates," he said.
Vice Strategy and Finance Minister Hur Kyung-wook took part in the Monetary Policy Committee meeting of the BOK last week, becoming the first senior official of the finance ministry to attend the monthly gathering in 10 years.
Opposition parties and BOK unionists voiced their concerns that Hur's move will end up undermining the independence of the central bank while Hur said his attendance was aimed at strengthening cooperation between the bank and the finance ministry.
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