Top financial policymakers agree on need for additional rate hike

Financial Services Commission Chairman Koh Seung-beom, right, shakes hands with Bank of Korea Governor Lee Ju-yeol at the central bank's headquarters in Seoul, Friday. Yonhap

Chiefs of FSC, BOK tight-lipped about inter-institutional dispute

By Park Jae-hyuk

Financial Services Commission (FSC) Chairman Koh Seung-beom and Bank of Korea (BOK) Governor Lee Ju-yeol clarified their intention to curb the snowballing household debt in their first meeting Friday, raising the possibility of another key interest rate hike within this year.

According to the FSC, Friday, the top financial policymakers agreed to work toward easing the financial imbalance, to brace for the possible impacts of U.S. tapering and an interest rate hike on the domestic market.

“If the risk from the financial imbalance continues to accumulate, this may affect macroeconomic stability, so it is necessary to ease such an imbalance through proper management of monetary policy and measures for fiscal soundness,” the BOK governor said.

The BOK raised its key interest rate by 25 basis points to 0.75 percent on Aug. 26, the first rate hike in nearly three years. Two more rate-setting monetary policy committee meetings are scheduled to be held in October and November.

In response, the FSC chairman, who began his term on Aug. 31, voiced his intention to maintain close cooperation between the two institutions to better cope with rising household debt and overheated asset prices.

The central bank chief said last month that its monetary policy was still accommodative, despite the latest increase in its key interest rate. The remarks from his recent meeting with the top financial regulator are therefore widely interpreted as a signal for an additional rate hike.

Such an interpretation is also backed by the fact that Koh was one of the hawkish members of the monetary policy board, until he left the central bank to go to the FSC.

The two leaders, however, remained silent about the ongoing dispute between the two institutions over the right to control tech firms offering electronic payment settlement services.

The conflict erupted after Rep. Youn Kwan-suk of the ruling Democratic Party of Korea proposed a revision to the Electronic Financial Transactions Act to obligate tech firms to provide all transactional information on customers to the Korea Financial Telecommunications & Clearings Institute under the FSC.

The BOK has protested the law that curtails its role in the national payment settlement system, dubbing the revised bill a “Big Brother law.”

While the FSC did not mention this issue in its press release, the BOK governor told reporters that Koh had already commented on it in his confirmation hearing last month. The FSC chief said at the time that he will to look for a reasonable solution with the central bank.

“I will meet Governor Lee as frequently as possible,” Koh told reporters, indicating his willingness to settle the dispute between the FSC and the BOK.

The FSC chairman reportedly plans to meet the heads of KB, Shinhan, Hana, Woori and NongHyup financial groups, Sept. 10.

He is expected to urge them to tighten their lending practices, considering that he emphasized the necessity of measures to curb the rising household debt during his latest meeting with the BOK governor and with Financial Supervisory Service Governor Jeong Eun-bo a day earlier.

He is also considering meeting the heads of state-run financial institutions and financial lobby groups in the near future.