A unified voice on economyThe debate over excessive liquidity is reaching fever pitch even though several economic indicators are improving and the downturn seems to be abating.
The liquidity issue has become heated as the asset market, including stocks and real estate, has experienced a boom despite the lack of a recovery in the real economy. The government earlier unleashed massive spending to prevent the economy from heading into a recession.
Even at a moment like this the government and the Bank of Korea have made statements that are in discord while within the government there are mixed views on the issue, which is confusing the market. We believe this confusion is a result of the government’s inability to come up with a sophisticated way to counter it. Up to now Korea has been cautious about optimistic views of the economic recovery despite the improvement of several economic indicators.
At this point the economy is still not on a path to full recovery. Rather, there’s the possibility that the real economy could fall even further. We believe that caution by the government is the right choice. But as prices of stocks and real estate rise, the government is afraid that excessive liquidity and, in particular, inflation in assets could be making a comeback.
This is the reason the government and the central bank were not in unison. There have been no huge changes in policy stance and there is nothing wrong with the government’s current stance.
The government currently has no plans to reduce liquidity by recovering the money flowing onto the market for now. However it is planning to prevent limited overheating in the asset market.
The markets were confused because the government and the central bank failed to present such a position with a unified voice. Ultimately, the debate on overflowing liquidity could have been prevented if the government and the central bank had acted appropriately. From this moment the government and the central bank should carefully finetune sensitive policies and express in a coherent voice the direction that they would take. Also, instead of just talking about the overheated asset market, they should come up with a policy that would correct the direction of the asset flow.
This is not the time to leisurely discuss the excessive liquidity on the market. If the foundation of the government’s monetary policy is not going to change, instead of engaging in pointless debate we should be focusing on revitalizing the economy. We should concentrate our strength on helping floating capital flow into productive areas while steadily pushing ahead with corporate restructuring.