Views of new board members to determine direction of monetary policy

Views of new board members to determine direction of monetary policy

Korea’s monetary policy may face a change of direction depending on the personal views of four new monetary policy board members who officially began their four-year terms Thursday, market observers said.

The four new members alone will be enough to determine the direction of monetary policies by the seven-member board, the observers noted.

However, it is believed that they do not all share the same views on how to best support the market and its growth.

The new board members are Cho Dong-chul, a professor from the state-run Korea Development Institute; Lee Il-houng, president of the Korea Institute for International Economic Policy; Koh Seung-beom, a senior member of the Financial Services Commission, the state watchdog; and Shin In-seok, president of the Korea Capital Market Institute.

Many say at least three of them will likely employ a dovish view, meaning that, at least under current conditions, they will likely vote in favor of a rate reduction.

Such an evaluation seems plausible given the fact that all three of them have worked for government-owned organizations, the market watchers agreed.

Also, the three were handpicked by the government itself or those who generally support or even promote government views, such as the Financial Services Commission and the Korea Chamber of Commerce and Industry (KCCI).

The government and those who share its views have long demanded an additional rate cut to bolster growth in Asia’s fourth-largest economy amid a prolonged drop in exports and sluggish spending.

gainst the government’s wish, Bank of Korea (BOK) Gov. Lee Ju-yeol and five other remaining and former members of the monetary policy board have remained hawkish, or against a rate cut, since June 2015, when the board sent the key rate to a record low of 1.5 percent.

The top central banker says a rate reduction under current circumstances will do more damage than good, accusing the government of failing to do its part.

“I believe the key rate currently stands at a level that can support economic growth. As I have stressed, monetary policy alone can do only so much to support economic growth. The monetary policy board continues to firmly believe that economic growth requires financial policies, policy measures on structural reform and monetary policy,” Lee told a press briefing after the monetary policy board decided to freeze the key rate for the 10th consecutive month in its latest monthly rate-setting meeting held Tuesday.

With three new members of the board believed to support the government view on how to revitalize the local economy, the seven-member board now remains equally divided with its fourth new member, Lee Il-houng, who was nominated by the BOK chief himself, widely expected to side with the central bank governor and other hawkish members of the board.

The casting vote lies with Hahm Joon-ho, who is generally viewed to maintain a neutral stance but has alone cast dissenting votes calling for a rate reduction in the past three rate-setting meetings.

The future course of the monetary policy will likely come into view when the board holds its next rate-setting meeting on May 13, the watchers said.


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