Market Anxious to Hear 1st Words of New BOK Chief

By Kim Jae-kyoung

Staff Reporter

The new chief of the nation's central bank is facing a crucial market test of the art of his rhetoric at the upcoming monetary policy committee meeting slated for Thursday, which many believe will set the tone for the new governor's credibility.

Although Bank of Korea (BOK) Governor Kim Choong-soo officially took the helm of the central bank from the outgoing Lee Seong-tae on April 1, his official debut on the financial market will be at the press conference following the April 8 meeting.

This will be a critical test for Kim as market participants will be paying close attention to every word he speaks. Since chances are that the central bank will keep the key rate frozen at the record low of 2 percent, attention is now being paid to Kim's rhetoric, not to the course of monetary policy.

No matter what stance, dovish or hawkish, he shows at his first conference, his most important job is to set his image as an independent governor, distancing himself from Cheong Wa Dae to gain credibility with the market.

Kim should send two clear but conflicting messages to the market through foggy rhetoric. Analysts say the market wants him to show his will to uphold the authority of the central bank, while not displeasing Cheong Wa Dae officials and economic policymakers.

In other words, he should make it clear that the central bank will not give up price stability at the expense of short-term economic growth to boost the government's growth-oriented policies. If he fails to do so, the market will not listen to anything he says going forward.

``I do believe that policy coordination in crisis times is needed to ensure a coordinated and effective response to a crisis,'' Deutsche Bank Seoul managing director Michael Hellbeck told The Korea Times.

``On the other hand, a central bank governor will need to watch inflation and act appropriately,'' he added.

His background as an economic aide to President Lee Myung-bak played in favor of his being nominated as the top central banker, but such a background is likely to work against him in managing the independent monetary policy.

Against this backdrop, many speculate that he will value coordination over independence, which could delay the implementation of exit strategies. President Lee made Kim his senior economic advisor when he was elected president in Feb. 2008. Seven months later, he was sent to Paris to become South Korea's ambassador to the OECD.

Kim's meeting with Strategy and Finance Minister Yoon Jeung-hyun, Monday, demonstrates his efforts to cooperate with the government.

At the gathering, the two agreed to step up coordination in pushing for economic and monetary policy measures in a bid to stave off a recurrence of the recent economic crisis, officials said.

``The government and the BOK agreed to work closely together in sharing information and holding working-level consultations on coordinating economic and monetary policy measures as part of efforts to stave off a recurrence of the crisis,'' said the press release, unveiled right after the two concluded their first meeting since the new governor was inaugurated last week.

No Rate Hike in April

Market analysts expect that Kim will keep the key interest rate at its record-low level at least for the rest of the first half of the year, as the government wants to stimulate more growth despite worries about inflation and asset price bubbles.

``There is no rush in raising the key interest rate. The consensus is solid that the BOK will wait for consumer inflation or housing price inflation to emerge as a problem or the Fed to hike its rate before it begins normalizing its target for the rate,'' ING Group Asia chief economist Tim Condon said.

``Our forecast is that it will follow the Fed and hike the rate in the fourth quarter,'' he added, saying the first rate hike will not come in the third quarter of this year.

In a report Monday, Nomura Securities also predicted that the BOK will move late, with a 25 basis point hike in September and another in December in 2010. It expects that consumer inflation will accelerate next year.