[EDITORIALS]Overdue rate hikeThe Bank of Korea, after four months of stability, raised the key interest rate a quarter of a percentage point, to 4.25 percent. The central bank said the decision was made to stabilize the real estate market in certain areas of the country as well as suppress inflation. Although the decision is bit late, it is a good move. In the past two years, the U.S. Federal Reserve Board has raised its key rate substantially while the Korean central bank has been very passive.
Our economy is suffering from side effects of the extremely low key rate, such as the instability in the real estate market. The Roh Moo-hyun administration kept the rate low, but corporate investments have not increased. Consumer spending has remained frozen.
But the lethargy in investments and consumer spending despite loose monetary policy was because of factors like confused government economic policies and rising international oil prices. This is clear from the fact that the Federation of Korean Industries, the group representing Korea’s conglomerates, once clamored for low interest rates but has stopped doing so for some time. Rates have been too low.
We now ask that the Blue House, the Bank of Korea and the Ministry of Finance and Economy cooperate and not contradict each other to keep economic policy consistent.
The Blue House, which has been obsessed with regionally balanced development, is spending 20 trillion won ($21 billion) to compensate landowners in rural areas where government offices will be dispersed. Yet the Blue House insists that it wants to stabilize real estate prices.
The Finance Ministry, obsessed with getting 5 percent economic growth this year, has spent large sums in keeping the won from rising and has pushed to keep interest rates low to prevent foreign funds from arriving to put upward pressure on the won.
The central bank, which was sensitive to inflation, maintained a low-rate policy and encouraged the resulting “hot money” to add to real estate speculation. So speculators and banks have profited handsomely but the general public, which trusted and followed the administration, is suffering.
There should be no more mistakes. The Monetary Policy Committee now should take over from the Blue House, where attention is concentrated on taxation, by raising rates further while stabilizing economic growth and the real estate market.
The role of the central bank’s Monetary Policy Committee is vital in the national economy’s stabilization.