Banker suggest on QE policy

An HSBC economist said although all means should be taken into account, it would be more preferable to utilize fiscal policy in creating the finance necessary for the corporate restructuring of the debt-ridden shipping and shipbuilding industry.

“There are many ways to prod structural adjustments in Korea’s industrial sector using both monetary and fiscal policies,” said Frederic Neumann, co-head of Asian Economics Research at HSBC, on Tuesday. “The precise mix depends on the circumstances, but in general it’s easier to keep monetary policy targeted at inflation and broader financial conditions and to use fiscal policy for more targeted measures.”

The economist agreed to the government’s claim that Korea’s quantitative easing (QE) will be different from those that are currently in practice in other economies including Europe and Japan in that Korea’s is more a “targeted approach.”
He said Korean QE is rather can be seen as one form of fiscal policy executed by the central bank.

“So executing Korean QE would not reduce the need for lowering interest rates,” Neumann said. “I think the Korean economy needs stimulus as more easing is warranted because the growth is weak.”

The HSBC economist projected Korea’s growth outlook to be 2.2 percent, far lower than the Korean government’s 3.1 percent target and even the Korean central bank’s revised outlook of 2.8 percent.

Recently, top officials from the Bank of Korea raised questions about its involvement in financing corporate restructuring, stressing that the monetary policy role is to help the economy recover and not assist in overhauling a specific debt-ridden industry.
Many local economists and the Bank of Korea labor union also showed strong opposition to the government’s idea of the central bank directly printing money for corporate restructuring purposes.

However, after an immediate backlash from the government, the Bank of Korea changed its stance on Monday, fully supporting the government’s initiative.

BY KIM JI-YOON [kim.jiyoon@joongang.co.kr]