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South Korea's finance minister and the Bank of Korea (BOK) governor held their first meeting on Monday during which they agreed to cooperate to support Asia's fourth-largest economy which is facing "growing downside risks."
Finance Minister Choi Kyung-hwan and BOK Gov. Lee Ju-yeol shared the view that the Korean economy is facing bigger downside risks, such as sluggish domestic demand, amid a slowdown in economic recovery due to the effects of the Sewol ferry disaster, according to a joint statement released by the two institutions.
The two addressed concerns on structural problems in the Korean economy, such as an imbalance in domestic demand and exports, and agreed that as the "axis of macroeconomic management" the finance ministry and central bank should harmonize economic and monetary policies to support stable growth, the statement said.
The meeting, the first of its kind since Choi took office last week, comes amid growing speculation that the pro-growth finance minister's appointment may put pressure on the central bank to cut the base rate.
In a split vote, the BOK's monetary policy committee decided to keep the key rate steady at 2.5 percent for a 14th straight month earlier this month.
The non-unanimous decision, in which one unknown member dissented from the majority to oppose the freeze, spurred views that the central bank may lower the rate as early as August. The July meeting marked the first split vote in nearly a year.
While Choi has not directly addressed the need for a rate cut, his recent remarks and policy track record have shored up hope of a rate cut, with the yield for three-year government bonds falling to yearly lows.
In response to a call for a rate cut at the National Assembly, Choi replied, "I can't say exactly what should be done about interest rates, but I believe that my message about the current economy has been sufficiently communicated. Nothing could be more explicitly mentioned (about interest rates) than this."
In Monday's meeting Choi, who doubles as deputy prime minister, however, addressed the central bank's independence.
"The economic team will do its best to meet its role. The BOK also has its own distinct role. I believe that things will go well if we think hard and cooperate," Choi said ahead of the meeting.
He reiterated his stance after the meeting, telling reporters that the rate policy was not discussed in the meeting and that "The BOK will make its judgment on the rate since (the rate policy) is the BOK's inherent right."
The central bank's seven-member policy committee is set to decide the base rate at its upcoming monthly meeting on Aug. 14. (Yonhap)
