Central bank should shift to swift, flexible stance
The Bank of Korea (BOK) kept its benchmark interest rate intact at 1.75 percent at its monetary board meeting last Friday. Prompted in part by a board member who called for reducing the rate, however, a growing number of financial market watchers are anticipating the policy rate will go down shortly.
BOK Governor Lee Ju-yeol made it clear that the market does not need to view the "minority opinion" as a signal for a looming cut. But the market's reaction implied that it saw Lee's remark as just a "ritual" warning. Nothing illustrated this better than the interest rate of three-year treasury bonds, the yardstick of the market rate, which stood at 1.59 percent, 0.16 percentage points lower than the base rate.
The adjustment of the key interest rate is the central bank's most important tool in monetary policy. It is only natural, therefore, for the bank to remain cautious in determining the rate taking into account the vast effect it may have on the overall economy. Nevertheless, the BOK needs to become a little more humble and flexible, not least because of the market rate's movement, somewhat removed from the top central banker's comment.
Recently, President Moon Jae-in stressed the need for an expansionary fiscal policy even if it means increasing the state debt to some degree. Finance Minister Hong Nam-ki announced the government is ready to turn Moon's words into action. Regardless of whether an increase in budget spending for an economic stimulus is right or wrong, it will be hard to blame the government for changing its policy direction once it has reached a consensus.
The central bank should also not remain overly rigid in adjusting the policy rate. As the economy has grown larger, the pace of its movement has also become far faster than before. If the BOK sticks only to policy consistency and prudent moves, despite the market's sudden changes, the central bank will always find itself a step behind. Swift, nimble policymaking helps boost the public's trust in the government. It is always far better to show a flexible stance in a given situation than losing appropriate timing by picking and choosing.
The Bank of Korea (BOK) kept its benchmark interest rate intact at 1.75 percent at its monetary board meeting last Friday. Prompted in part by a board member who called for reducing the rate, however, a growing number of financial market watchers are anticipating the policy rate will go down shortly.
BOK Governor Lee Ju-yeol made it clear that the market does not need to view the "minority opinion" as a signal for a looming cut. But the market's reaction implied that it saw Lee's remark as just a "ritual" warning. Nothing illustrated this better than the interest rate of three-year treasury bonds, the yardstick of the market rate, which stood at 1.59 percent, 0.16 percentage points lower than the base rate.
The adjustment of the key interest rate is the central bank's most important tool in monetary policy. It is only natural, therefore, for the bank to remain cautious in determining the rate taking into account the vast effect it may have on the overall economy. Nevertheless, the BOK needs to become a little more humble and flexible, not least because of the market rate's movement, somewhat removed from the top central banker's comment.
Recently, President Moon Jae-in stressed the need for an expansionary fiscal policy even if it means increasing the state debt to some degree. Finance Minister Hong Nam-ki announced the government is ready to turn Moon's words into action. Regardless of whether an increase in budget spending for an economic stimulus is right or wrong, it will be hard to blame the government for changing its policy direction once it has reached a consensus.
The central bank should also not remain overly rigid in adjusting the policy rate. As the economy has grown larger, the pace of its movement has also become far faster than before. If the BOK sticks only to policy consistency and prudent moves, despite the market's sudden changes, the central bank will always find itself a step behind. Swift, nimble policymaking helps boost the public's trust in the government. It is always far better to show a flexible stance in a given situation than losing appropriate timing by picking and choosing.
![[INTERVIEW] Choi Min-sik, Lee Dong-hwi on creating Korean-style noir with 'Big Bet'](https://img.koreatimes.co.kr/upload/thumbnailV2/8b795a8f6b42492db4e8fdc47e9abd8d.jpg/dims/resize/178/optimize)
