BOK boss sees bill as stabilizing force

The recent passage of a bill empowering the central bank to investigate the financial industry is targeted at preventing future market crises and is not part of a power struggle, Kim Choong-soo, Bank of Korea chief, said yesterday

He said dissenting voices were to be expected as the central bank can only hope to please a majority.

“Since there are various players in the market, [the BOK] may be able to align itself with 60 to 70 percent of the market’s expectations,” he said, adding that the key to success lay in maintaining good communication links with market players.

His remarks came as the BOK prepares to hold its monthly rate-setting meeting on Thursday. It is under pressure to raise the key interest rate to combat inflation as Korea’s consumer prices jumped 5.3 percent in August from the same period one year earlier.

But a dim global outlook and heightened economic uncertainty are making analysts bet on a rate freeze.

The BOK kept the key rate at 3.25 percent for the second straight month in August as the first-ever U.S. credit downgrade combined with European debt fears to stoke economic jitters.

Kim has often come under attack for not communicating well with the market since he took over the top post at the BOK last year.

Now many analysts claim that his monetary policy decisions have been unpredictable and blame the central bank’s passive approach for the recent spike in inflation. However Kim has brushed aside the criticism.

New law creates balance

The National Assembly last Wednesday approved a bill that allows the central bank to investigate financial companies.

The amendment, which was first submitted to the Assembly two years ago, has not been well received by the Financial Supervisory Service, the country’s financial regulator. Local banks are also dissatisfied as they believe the new law will decentralize the watchdog’s regulatory rights and harm financial firms due to risk of frequent inspections.

But Kim countered that, on the contrary, the new law will empower the central bank to cope with financial instability and implement policies to stem systemic risks, thus allowing it to play a greater role in tackling financial turmoil.

“The passage of the bill means that an environment has been created [for the BOK] to respond with great flexibility to the changing [economic] situation,” Kim said yesterday. “It is not the case that one institution is taking authority away from another.”

The governor said that although the central bank’s role has been expanded, its priority remains the same: to keep consumer prices stable.

By Lee Ho-jeong, Yonhap [ojlee82@joongang.co.kr]