BOK asleep at wheelReining in consumer prices is a primary responsibility of the Bank of Korea. The law even defines the role of the central bank that way. It acts as an independent state agency to manage and control consumer prices.
The government tends to pursue economic growth, and that can fan inflationary pressure. The central bank, with its sovereign authority, can effectively keep prices stable and balance the economy against the government’s pro-growth actions. Therefore the blame lies with the central bank if prices skyrocket.
Consumer prices rose by 5.3 percent, the fastest pace in three years, last month from the same period a year ago. We need not cite the recent data to underscore the problem.
The entire population has been struggling with expensive price levels. The Bank of Korea has aggravated the problem by missing its opportunity to hike the benchmark interest rate.
The Bank of Korea resorted to heavy easing when the global financial crisis spilled over to the local economy in 2008. It was an inevitable action to stave off an economic slowdown.
It is textbook economic theory that interest rates should be raised and monetary policy tightened if the economy gets better, because inflationary pressure can dampen consumption and economic prospects. The Bank of Korea has been constantly advised to hike interest rates.
But it stood pat, fearing repercussions on growth. It remained wary even after the economy grew 6.2 percent last year, outpacing the country’s growth expectations. The BOK has forgotten that its main mission is to fight inflation, not spur growth. The result is runaway prices.
If the BOK can’t perform its role properly, it can bring on government interference. The government stepped in to contain consumer prices by forcing a freeze on 52 consumer items and more or less threatening manufacturers into lower prices.
But that authoritarian route can hardy work in today’s market. Authorities are left with the option of adjusting interest rates and the value of our currency. But economic circumstances, both domestically and externally, have worsened. The local economy, in sync with the global economy, is rapidly slowing amid mounting public and private debt.
The risks could have been lessened if the central bank had acted in a timely and resolute way. The BOK inevitably will have to raise interest rates. It must remind itself of its primary duty and thoroughly examine the timing and scale of tightening.