[Editorial] BOK under attack

It is unusual for the governor of the Bank of Korea to be a target of attack from lawmakers during an annual inspection of government agencies by the National Assembly. But Kim Choong-soo, governor of the central bank, was severely criticized for his mismanagement when his bank was inspected by the Committee of Strategy and Finance on Friday.

Mainly at issue were the central bank’s poor economic forecasts. As an economist-turned-lawmaker affiliated with the ruling Saenuri Party noted, the central bank has lost much of its aura as an economic predictor.

The lawmaker correctly observed when he said that the central bank, which was praised for its highly regarded research capacity during the 2008-10 period, fell far behind from some global investment banks when it came to its level of accuracy in forecasting growth in the subsequent years. Was it because the central bank turned more liberal than warranted under Governor Kim’s management?

During the past two years, the central bank revised its growth forecasts as many as 12 times. When it came to the 2014 growth outlook, the central bank lowered it from its earlier forecast of 4 percent to 3.8 percent 10 days ago. Admittedly, the change reflected the revision of the International Monetary Fund’s Korea outlook, from 3.9 percent to 3.7 percent, on Oct. 8.

Most humiliating to the central bank was a reminder that it was much worse at forecasting growth in 2011 than Samsung Economic Research Institute. The actual growth rate was at 3.7 percent, 0.1 percentage point higher than the forecast of the private think tank and 0.8 percentage point lower than that of the central bank.

A difference as wide as 0.8 percentage point means a lot to the nation’s economic management, given that its gross domestic product is approaching 1.3 quadrillion won. Such a difference is also destined to create confusion in the private sector, given that private-sector players often refer to the central bank’s forecasts in working out their business plans.

The difference between a growth forecast and the actual growth rate affects the private sector in other ways as well. A growth forecast is taken into account that the central bank determines its benchmark rate each month, and commercial banks refer to it in deciding their borrowing and lending rates.

If it wishes to help manage the nation’s economy and avoid creating any confusion in the private sector, the central bank will have to bolster its research capacity and hone its forecasting skills.