BOK’s Kim says he’s betting on the upside

Kim Choong-soo

Bank of Korea Governor Kim Choong-soo said an improved global outlook increases the odds of Korea exceeding this year’s growth forecast, signaling that further monetary easing isn’t necessary for now.

Asia’s fourth-largest economy is likely to achieve 2.8 percent growth, Kim, 65, said in an interview. “I bet a little bit more on the upside than the downside,” Kim said, adding that domestic liquidity is “abundant.”

Kim’s comments came as the three-year government bond yield fell to a record low on investor expectations for policy makers to cut rates as exporters struggle with the won’s strength against the yen. Economists are split on the outlook for borrowing costs, with Barclays and Nomura International expecting no rate change this year, while Goldman Sachs Group said in a Feb. 12 research note that it forecasts a rate reduction April.

The won climbed 23 percent against the yen in the past six months, with Korea expressing concern at Japan’s economic policies before and after a Group of 20 nations meeting in Moscow. The three-year bond yield fell 2 basis points or 0.02 percent point, to a record low of 2.69 percent yesterday, according to Korea Financial Investment Association data.

The yield on Korea’s 2.75 percent bonds due December 2015 rose one basis point, or 0.01 percentage point, to 2.70 percent, Korea Exchange prices showed.

Talking of global sentiment, Kim said he sensed at the G-20 gathering of central bankers and finance ministers that “the whole mood is improving” even as officials await more evidence of economic gains.

The BOK kept the benchmark seven-day repurchase rate at 2.75 percent on Feb. 14 after 25-basis-point cuts in July and October. For a second month, the decision wasn’t unanimous. In January, BOK board member Ha Sung-keun called for a rate cut to curb excessive appreciation of the won and support the weak economy.

Asked to comment on investors expecting a rate cut after the split votes by the monetary policy committee, Kim said, “I represent the views of the committee. What matters is the decision of the MPC.”

He added that while the low pace of inflation would in theory allow room for monetary easing, the impact of such a move would be muted because of the abundant liquidity in the market.

“There is no reason not to lower the rate, but there is no reason to lower it,” he said.

Another board member, Moon Woo-sik, said last month that he saw no immediate need to alter benchmark interest rates and it’s “too early” for any central-bank response to the won’s gain against the yen.

Korea is incurring a “growing” loss from intervening in the currency market, Chung Hae-bang, a member of the Bank of Korea’s monetary policy committee, said at a forum Tuesday.

A stronger won erodes the competitiveness of exporters such as Samsung Electronics, which said last month that currency gains could reduce its operating profit by 3 trillion won ($2.8 billion) this year. Kia Motors reported a 51 percent slump in operating profit last month and said it expects a difficult year.

Consumer prices rose 1.5 percent in January, below the central bank’s target range of 2.5 percent and 3.5 percent, while economic growth picked up to 0.4 percent in the fourth quarter from 0.1 percent in the previous three months.

Japan’s “expansionary policy operations” and fiscal tightening in advanced nations are among risks for a Korean economy that is showing signs of gradual improvement, the central bank said on Feb. 14.

The front-loading of government spending in the first half of the year is already giving growth a boost and Deutsche Bank says a supplementary budget may be announced by President-elect Park Geun-hye’s administration in March. Bloomberg