Seoul Advised to Respect BOK’s Independence
By Lee Hyo-sik
Staff Reporter
President Lee Myung-bak and other top economic policymakers should respect the central bank's monetary policy independence to head off inflation and achieve sustained balanced growth, the International Monetary Fund (IMF) said Thursday.
It said the Bank of Korea (BOK) should begin taking liquidity-tightening steps to prevent the side effects of its accommodative monetary policy, stressing the bank should be able to make own decision on whether to raise its key interest rate.
In a seminar at the state-run Korea Development Institute, IMF financial policy advisor Jose Vials said Korea and other countries should prepare to execute an exit strategy in the near future to curb snowballing sovereign debts and slash ample liquidity, which have been brought about by fiscal stimuli and record-low interest rates across the globe.
"Policymakers around the world should place top priority on achieving sustainable growth in the post-crisis world. They need to improve fiscal health and ensure their central banks' policy independence so that they can fulfill their role as inflation fighters," another IMF official Paolo Mauro said.
Their remarks came at a time when the BOK has been under mounting pressure from the government not to raise borrowing costs. Strategy and Finance Minister Yoon Jeung-hyun and other policymakers have been urging the central bank to leave the interest rate untouched at the record-low level of 2 percent until a genuine and sustained economic expansion is seen.
Additionally, Vice Strategy and Finance Minister Hur Kyung-wook has been attending the BOK monetary policy meeting since January, becoming the first senior finance ministry official to do so in 11 years. The move is seen by many as the government's attempt to vocalize its opinion on the bank's monetary policies and other economy-related decisions, which is to stop the BOK from raising its key policy rate.
Meanwhile, another senior IMF official Olivier Blanchard said resolving global imbalances was the key to global economic recovery, urging the United States to slash its fiscal and trade deficits. "Additionally, China needs to reduce the size of its current account surplus by appreciating the value of the yuan, while other emerging economies should cut their foreign exchange reserves."
Blanchard said to achieve sustainable global economic growth, the world's largest economy should boost its savings rate, while China should bolster its social safety net and improve its corporate governance structure. "Emerging economies should expand the size of domestic markets and cut reliance on overseas demand for growth."
On Thursday, the BOK said it has added 14 more employees to its two divisions ― the Financial Systems Stability Department and the Payment and Settlement Systems Department ― in a bid to boost its capability in supervising banks and other financial firms.
The Financial Systems Stability Department is responsible for overseeing securities, insurance and other non-banking sectors, while the Payment and Settlement Systems Department is in charge of inspecting financial settlements between companies.
Last September, the BOK signed an agreement with the Financial Supervisory Service (FSS) to jointly inspect banks and other financial firms.