Central bank keeps rate steady for ninth monthWith only a month left until the end of his four-year tenure as head of the central bank, Governor Kim Choong-soo once again kept the key borrowing rate at 2.5 percent, the ninth consecutive month at the current level.
The central bank cited the state of economic recovery as the primary reason for holding the key rate steady. Not only did the Korean economy meet its growth target of 2.8 percent last year, but there is also growing optimism that the recovery could be solid, despite recent jitters from emerging markets that drove stock markets down across the globe, including the Kospi, Seoul’s main bourse.
“Exports sustained their favorable trend in January due to an increase in advanced economies, centering around the EU,” the Bank of Korea said in a statement released yesterday.
“In the coming months, the Korean economy is expected to maintain its upward trend, in line with the recoveries in advanced economies and the improvement of consumption and investment sentiment,” the statement continued.
The Korean central bank has remained conservative in its monetary policy since it shaved off 0.25 of a percentage point from the key borrowing rate in May, under pressure by the central government to take part in its economic stimulus campaign.
There have been growing demands by the market to push the key rate down further to bolster growth and solidify the recovery, but Kim said that was unnecessary. He claimed that the effects of the central bank’s loosening of the key rate in May would materialize in a year or a year and a half, therefore an additional cut was not needed.
Although growth in the final three months of last year fell below 1 percent, that did not necessarily mean that the recovery was slowing. The central bank attributed the slowdown to a substantial cut in government spending, noting that private sector spending and corporate investment in production lines and machinery have gone up.
Korea’s current-account surplus also reported an all-time record, topping $70 billion.
The Bank of Korea governor did acknowledge the risks stemming from emerging markets, particularly if volatility continues; however, he said that the impact was unlikely to last long and that the situation would eventually improve.
“Emerging markets were affected in a variety of ways,” Kim said. “But that was because of their own economic troubles,” rather than because of the U.S. central bank’s tapering, he said, noting the disappointing numbers coming from purchasing management indexes by manufacturers in China and the Turkish central bank’s intervention to help its sliding currency.
“Tapering was already expected and each country will come up with measures to address the situation,” the central bank governor said. “With the emerging markets adopting macroeconomic policies and changing structures [to stabilize the markets], the volatility will likely be less than now.”
The central bank governor said yesterday’s decision was made unanimously by its monetary policy committee members.
Meanwhile, interest has been growing about who might succeed Kim as his last days at the central bank tick down.
There have been several names tossed around, mostly of economists and university professors, including some from President Park Geun-hye’s alma mater, Sogang University.
Those names include Kim Kwang-doo, an emeritus professor at Sogang University and economic adviser to the president; Kim Joon-kyun, head of the Korea Development Institute, a state-run think tank; and Shin Hyun-song, a renowned economist and Princeton professor. Former deputy governor of the Bank of Korea, Lee Ju-yeol, is also rumored to be a possible candidate.
However, most of the people being mentioned have either denied their interest, politely suggested others would be a better candidate or said they were preoccupied with their current job.
There’s even a joke that Kim might be renewed for a second term.
So why is there so much reluctance to take the job, especially when the current governor is nearly finished?
The most likely reason seems to be the tough screening process from lawmakers that nominees must now undergo.
In the past, candidates were simply picked by the president. But all that changed when a law requiring the central bank governor nominee to face questioning, similarly to cabinet-level appointees, passed the National Assembly in a landslide vote in early 2012.
The standard required to pass the National Assembly’s review is expected to be high, including the nominee’s ability to work cooperatively with the Blue House and the Finance Ministry, and having strong international relationships.
The appointment of top officials under the Park administration has not gone particularly smoothly. Soon after being inaugurated in February last year, the president’s picks for prime minister, defense minister, justice minister, future planning minister and head of the Fair Trade Commission all backed out in the face of numerous graft allegations.
Kim Jeong-hoon, the nominee for future planning minister and former president of Bell Labs, withdrew his candidacy after opposition party lawmakers accused him of working with the U.S. Central Intelligence Agency.
The president has also been criticized over her poor picks, including former Blue House spokesman Yoon Chang-jung, who reportedly sexually assaulted an intern during the President’s first visit to the United States in May.
Recently the president had to sack her fisheries minister, who made inappropriate comments about a devastating oil spill not long after Park warned her cabinet members to be careful about their words.
That warning had been necessary because Finance Minister Hyun Oh-seok outraged the public after he said consumers were partly responsible for the massive personal information leaks at leading credit card companies.
But others say that the opaque and last-minute nature of the nominees’ disclosure only increases controversy.
The selection process has even been nicknamed “handbook appointing,” because some people think the President’s choices look more like selections from her personal address book rather than the result of discussions with top advisers.
As a result, the public often ends up questioning why many of the nominees were chosen.
Governor Kim, when asked about his successor, politely refused to comment. “The right [to choose a successor] belongs solely to the person who makes the decision,” said Kim, meaning President Park.
BY LEE HO-JEONG [firstname.lastname@example.org]