BOK likely to wait and see

Bank of Korea board member Moon Woo-sik sees no immediate need to alter benchmark interest rates, saying it’s “too early” for any central bank response to the yen’s slide against the won.

“There are good reasons why people tend to be more optimistic this year than last year,” said Moon, 52, in an interview in Seoul last week. There’s no “important reason to take monetary-policy actions quickly” unless the South Korean economy declines further, he said.

Central bank policy makers meet Feb. 14 to set rates as Hyundai Motor and Samsung Electronics grapple with a stronger won gains and the likelihood of economic and fiscal policy shifts after the Feb. 25 inauguration of President-elect Park Geun-hye. Moon said business confidence and investment may improve in South Korea as risks recede from Europe’s debt crisis and the so-called fiscal cliff of spending cuts and tax increases in the United States.

Policy makers need to “wait and see” as South Korea’s economy shows signs of improving after already hitting bottom, he said. “I don’t think we’re in a very urgent situation.”

The South Korean currency has strengthened by 1.2 percent to 11.74 per yen.

As North Korea shows signs of preparing for a nuclear test, Moon said developments such developments tend to have a “very limited” effect on South Korea’s economy.

While a rate increase is unlikely in the “very near future,” it could happen if the economy shows unexpected strength and inflation picks up, Moon said. South Korea is likely to “coordinate to some extent” when central banks globally exit from loose monetary policies, he said.

In January, Ha Sung-keun was the lone member of the seven-person monetary policy committee to call for a reduction in rates. Governor Kim Choong-soo and his officials kept the benchmark seven-day repurchase rate unchanged for the third straight month at 2.75 percent.

Moon’s view contrasts with that of the Royal Bank of Scotland Group, which last month forecast an interest-rate reduction at the next meeting after the central bank pared its forecast for this year’s economic growth to 2.8 percent from an October estimate of 3.2 percent. Analysts at HSBC Holdings and Barclays Capital predict no change.

Japanese Prime Minister Shinzo Abe’s campaign to expand monetary easing and revive his nation’s economy is driving down the yen, aiding exports of electronics and automobiles that compete with South Korea. The won has gained about 22 percent against the yen in six months.

“We have good reason to be worried about rapid depreciation of the yen,” Moon said. At the same time, “it is too early” for the Bank of Korea to consider taking any action, he said, adding that policy makers will monitor currency volatility for any effects on economic and price stability.

The policy maker expressed concern about the likelihood of increased welfare spending by the new president.

“On the one hand, it’s necessary but on the other hand, it’s worrisome,” Moon said. “Simply giving money to people does not help boost potential growth and it can jeopardize fiscal soundness.”

Bloomberg