BOK chief unflustered by ‘taper’

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BOK chief unflustered by ‘taper’

The United States Federal Reserve will probably start to “taper,” or wind down, its quantitative easing measures if the economy improves demonstrably, Bank of Korea Governor Kim Choong-soo said yesterday.

“I don’t think we’re in a situation where it’s difficult to predict [what measures will be taken] because of lack of information,” Kim said. “If various indicators remain unchanged from earlier anticipations, I believe [the Fed will taper off its bond-buying program] as expected.”

Recent economic indicators showed that employment in the U.S. is improving along with manufacturing sentiment in Europe and China. While the Fed is expected to hold its two-day Federal Open Market Committee meeting on Sept. 17, the market anticipates that the FOMC will most likely decide to reduce its monthly bond purchases.

Kim’s comments were made at a meeting with representatives from the investment banking sector yesterday at the BOK headquarters in central Seoul. Industry officials attended, including representatives of Goldman Sachs and Bank of America Merrill Lynch. The meeting was held after Kim returned from an annual symposium with other central bankers in Jackson Hole, Wyoming, last week.

There have been lingering concerns that once the U.S. Fed starts reducing its stimulus measures, emerging countries would suffer from the outflow of foreign capital. Last week, Korean stocks tumbled amid growing fears that a third financial crisis could hit the global market following the global meltdown of 2008 and the Asian economic crisis of 1997.

Kim said that many central bankers expect no such global crisis.

“When liquidity starts to get reduced, some markets without principles [and with weak fundamentals] will become targets,” Kim said. “[At the Jackson Hole symposium, the overall mood was that] there will not be a major crisis happening, but there were comments that some countries could experience difficulties.”

Kim added that the Korean economy was viewed as doing relatively well by attendees of the Jackson Hole meeting.

The Korean government has been sending out the message that its economy is fundamentally strong and that it learned the lessons of the crises of 1997 and 2008. The government and market analysts say that compared with other countries, Korea has stronger fundamentals in terms of a current-account surplus and foreign-exchange reserves.

The minister of Strategy and Finance dismissed anxiety over the Korean financial market and said the government is closely watching external risks.

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