New BOK board is seen likely to lower rates

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New BOK board is seen likely to lower rates

A changing of the guard on the Bank of Korea’s (BOK) board will usher in four policy makers with links to the government, increasing speculation that the BOK may cut borrowing costs that are already at a record low.

The nominees announced Monday to replace members vacating their positions on April 20 have all worked directly in government or for state-funded research organizations. The current board’s last rate-decision meeting will be held April 19, with the new members to make their first determination at a gathering on May 13.

“Candidates from the government or state think tanks tend to be more aligned with government policy,” said Park Chong-hoon, head of research for Standard Chartered Bank in Seoul. “We expect additional fiscal stimulus in the second half of the year for growth, which would increase the need for monetary policy coordination.”

Standard Chartered’s view that the key rate - currently 1.5 percent - will be cut twice this his year has been bolstered by the announcement of the nominees, Park said.

Among the candidates is Cho Dong-chul, chief economist for the Korea Development Institute (KDI), which has been calling for accommodative monetary policy to boost inflation for several years. KDI has even highlighted concern that South Korea faces deflationary risks.

Koh Seung-beom joins from the Financial Supervisory Commission. Koh is a “government person” and is likely to have a dovish stance, according to report on Tuesday report by Hana Financial Investment.

Lee Il-houng, recommended by the Bank of Korea, is currently the head of state-funded Korea Institute for International Economic Policy. Lee is seen as the sole new member who might resist further monetary easing, according to reports by Hana Financial and NH Investment & Securities.

Lee told local media in February 2015 that there is a need to consider whether a rate cut is really necessary when the U.S. Fed is increasing rates.

Separately, South Korea’s ruling Saenuri Party said in its economic policy platform released ahead of next month’s parliamentary election that it will ask the BOK for aggressive policies including more debt purchases.

With developed nations performing quantitative easing after the limits for rate cuts became obvious, the BOK should also consider directly purchasing mortgage-backed securities and bonds sold by Korea Development Bank, according to a statement on the Saenuri Party website.

The BOK currently purchases government bonds and some state-guaranteed debt, and issues monetary stabilization bonds as part of its open market operation to control liquidity. Bloomberg

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