BOK cuts key rate meetings to 8

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BOK cuts key rate meetings to 8

The Korean central bank is making a major change to how it will decide on the nation’s key borrowing rate.

Instead of holding a monetary policy committee meeting every month it will cut back the number of meetings to only eight each year. The new meeting procedure will start in 2017 and dates will be established at the beginning of each year.

According to the Bank of Korea, members on the monetary decision-making body approved the lower number of meetings at a meeting on Christmas Eve. The reduction is the biggest change in the bank’s procedures since May 1999 when the key borrowing rate was first implemented.

Although there will be four fewer meetings to decide the country’s key interest rate, the monetary policy committee still plans to meet 24 times a year. The four available agendas will focus on assessing and evaluating the financial and grander macroeconomic situation.

The changes follow central banks in other countries, including the United States and Europe, which holds eight meetings a year to decide on interest rates. Japan, which held 14 meetings annually, has also decided to cut back the number of its meeting to eight starting next year.

The BOK decided to reduce the number of meetings because it believes that it needs to manage the country’s monetary policy with a longer term view since it takes time before changes actually start showing up in the real economy. The governor has often stressed that when a key rate is changed it takes six to 18 months before the impact really shows.

However, there is concern that the change could weaken communication between policymakers and the market.

“In a situation where the economic conditions are uncertain, such changes [by the central bank] could only further deepen the market’s uncertainty on the nation’s monetary policy,” said Oh Jung-geun, Konkuk University professor. “The central bank needs to come up with plans that will solve the weakened communication line with the market meticulously.”

Enhanced communication with the market was one of the key pledges by BOK Governor Lee Ju-yeol when he took office a year ago. One of the biggest problems his predecessor Governor Kim Joong-soo suffered was sending out mixed messages on monetary policy decisions that added to confusion in the market. This weakened the influence of key rate changes sought by the BOK.

On next year’s monetary policy direction, the BOK said it will focus on maintaining stability in the financial market while supporting the nation’s economic growth.

“We will consider the financial market stability and growth appropriately,” said Governor Lee on Wednesday. “We will work on creating a financial environment that will help the government pursue structural reform smoothly.”


BY HA NAM-HYUN [lee.hojeong@joongang.co.kr]
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