By Na Jeong-ju
Staff Reporter
The new government's growth-oriented policy is likely to affect the central bank's hawkish monetary stance, pushing it to adopt growth-spurring measures despite inflation risks.
Bank of Korea (BOK) Governor Lee Seong-tae has downplayed such concerns, but the nomination of growth advocates, such as former Vice Finance Minister Kang Man-soo, for top economic posts, is not good news for the bank.
Kang was tapped on Feb. 15 as the new government's first planning and finance minister. Late last year, he called on the BOK to cooperate with the next government to attain strong growth.
Kang is a strong advocate of tax reduction, even suggesting that the country should abolish corporate income tax to boost the economy and attract foreign investors and companies. He has also said the government should play a larger role in monetary and foreign exchange policies.
BOK officials are concerned that his economic policies may influence the bank's monetary decisions. The BOK usually places top priority on curbing inflation in making decisions on interest rates and believes stabilizing consumer prices is vital for higher economic growth in the long term.
``Our primary concern is inflation, and this principle will not change under the new government,'' Governor Lee said earlier. ``It is up to the seven members of the Monetary Policy Committee to decide on interest rates. I believe the new government will respect this.''
Late last year, the BOK cut its growth forecast for 2008 to 4.7 percent from its previous 4.8 percent projection, while the presidential transition committee is targeting 6 percent growth. Committee members say the central bank's cooperation is crucial to attain the goal.
Despite growing downward pressure on the economy, it kept its monthly call rate target unchanged at 5 percent for the sixth consecutive month on Feb. 13, citing growing inflationary pressure.
Governor Lee indicated that the BOK may move to cut the interest rate, saying the economy is exposed to growing downside risks. However he has not commented about its timing. Many analysts forecast the BOK will drop its hawkish stance in the second quarter.
jj@koreatimes.co.kr