Ministry to Have More Say in Monetary Policy
By Kim Tae-gyu, Lee Hyo-sik
Staff Reporters
The Ministry of Strategy and Finance said Thursday that its vice minister will attend the Bank of Korea (BOK)'s rate-setting meeting, starting from Friday, a move that is widely seen as an attempt to vocalize its opinion on the latter's monetary policies and other economy-related decision making.
The controversial move is feared to threaten the central bank's policy independence as many believe that it is largely intended to stop the BOK from raising its key policy rate from the current level set at the record low of 2 percent.
``Government officials have refrained from attending the BOK's monetary policy meeting to respect its policy independence. But the unprecedented worldwide economic crisis has raised the importance of policy coordination between the government and the central bank. Beginning Friday, the vice finance minister will participate in the rate setting meeting to further strengthen the bilateral policy cooperation and jointly manage economy-related matters,'' the ministry said.
Under ``the Bank of Korea Act,'' either vice finance minister or vice chairman of the Financial Services Commission, the nation's financial rule setter, can take part in the BOK's monetary policy meeting. But government officials have largely avoided attending in a bid to ensure the central bank's independence.
If Vice Strategy and Finance Minister Hur Kyung-wook attends the meeting, it will be the first time since June 1999.
Following the MOSF statement, the Financial Services Commission (FSC) also said that it may attend the monthly BOK committee down the road, though it will not take part in this Friday's meeting.
``We are allowed to participate in the BOK gathering if necessary. We have not used the right but we may do so in the future,'' said FSC Director General Choo Kyung-ho at the Financial Policy Bureau.
``Under the relevant law, our vice chairman can attend the BOK meeting when issues under the jurisdiction of the FSC are discussed.''
The remarks prompted concern among some watchers that the financial bureaucrats might undermine the independence of the BOK, arguably the single-most significant criterion for any successful central bank.
``In the face of the requests that the key rate should be cranked up in line with the economic recovery, the government seemingly wants to step in as it is against such ideas,'' Daewoo Securities analyst Yoon Yeo-sam said.
``The chances are that the BOK committee will delay the timing of raising the key rates to the second quarter instead of in February or in March,'' he said.
In particular, they worry that the BOK might be forced to delay the adjustment of the benchmark interest rate as the MOSF and the FSC have claimed that the rate should be kept at the record-low 2 percent to grapple with the economic downturn.
Strategy and Finance Minister Yoon Jeung-hyun recently said that Korea should continue an expansionary fiscal and monetary policy stance, despite the stronger-than-expected economic rebound over the past two quarters.
Yoon said the 5-percent growth forecast for 2010 is largely attributed to the base effect, stressing the central bank should not raise the rate from the record-low level of 2 percent for the foreseeable future in order to achieve genuine and sustainable expansion.