BOK’s monetary missteps
The Bank of Korea’s monetary policy has hit a stalemate. At this month’s meeting, the central bank’s Monetary Policy Committee kept the benchmark short-term interest rate unchanged at 3.25 percent for the ninth straight month. It has found little room for maneuvering as it is hemmed in by both the need to promote growth and the desire to maintain stability. While the government has succeeded in bringing consumer prices down to the target level of between 3 and 4 percent, however, economic threats and uncertainties remain in the form of rising oil prices and slowing exports. But the central bank must take responsibility for triggering a sense of inertia in terms of its unchanging monetary policy. Even though it recently hinted that it may soon hike the rate, the bank is now steadfastly defending its decision to keep the same interest rate as a prudent move.
The BOK has already proved itself remiss in terms of squandering opportunities to revise the rate. In the first quarter of 2010, the nation’s actual gross domestic product grew at a staggering pace of 8.1 percent from one year earlier. Despite calls for tightening, however, the central bank only chose to raise the key rate in July. It also acted too conservatively ahead of its hosting of the Group of 20 finance ministers’ meeting and summit conference in November of that same year. Even as the domestic economy grew beyond its target range of 4 percent for two straight quarters, the bank left the key rate unchanged for four consecutive months, showing itself overly influenced by the easing trend of other major beleaguered economies. If it had raised the benchmark rate in spring and implemented two more hikes by 0.25 percentage points last year, the Bank of Korea would have had greater room for monetary maneuvering today.
Too much state interference also restricted the central bank’s monetary role. Its monetary policy board has been missing a member for two years now. Several recommendations have gone to the Blue House for approval, but the president has turned them down as he insists an expert on international markets must fill the role. But qualified financiers from overseas have mostly rejected the offer, citing living and schooling problems. As the role has been vacant so long, the central bank has to find five replacements for the seven-member committee by next month because their terms all end at the same time. This presents a major threat to the need for a consistent monetary policy. As the role of the central bank has become more important globally, it must work hard to restore its authority.