Money Policy: 'Flexible' and 'Timely,' but What's Next?

The head of the Bank of Korea said Monday that the central bank would adopt a "timely" monetary policy in the second half of this year. He said the bank would closely monitor business activity and consumer prices, given the uncertainties over economic conditions at home and abroad.

Chon Chol-hwan, the governor of the central bank, made the remarks at a meeting with his ranking staff.

Experts interpreted the rather obscure comments as Mr. Chon's willingness to cut key interest rates further as part of a preemptive monetary policy if the slump in the real economy continues.

The central bank trimmed its key short-term interest rate earlier this month by 25 basis points to 4.75 percent in a bid to boost the sagging economy.

So far this year, Mr. Chon has said repeatedly that the central bank would implement a "flexible" monetary policy, checking consumer prices, business activity and financial markets.

"The central bank cut the rate on July 5 to stimulate consumption and investments," he told his staff, "because second-half inflation was expected to slow, but facility investments and exports remained sluggish."

The central bank will supply liquidity "flexibly" through open market operations, he said, because local financial markets may become shaky if corporate profitability is hit by a prolonged economic slump or large companies fail to complete their restructuring programs now underway.

by Suh Kyung-ho