Central bank under fire for inflation growth moves to set up new PR organ
Korea’s central bank has named reining in consumer prices as its top priority this year, but its reorganization plan sends a mixed message about whether it is indeed determined to fight inflation.
“Price stability has emerged more than ever before as an important matter of national concern,” said BOK Gov. Kim Choong-soo in his New Year’s message last week. The first noticeable step, however, is to set up a new division officially titled “Communication Department.”
Kim himself mentioned that it is the first unit among government agencies that starts with an English word, suggesting the specialty of the new division is to beef up the BOK’s public relations with the media and the public.
The establishment of the Communication Department has to do with the BOK’s key function: price stabilization. Last year, domestic inflation growth shot up quickly while the central bank hesitated to opt for a timely rate hike. Analysts and the local press argued the BOK should have moved more aggressively, blaming the central bank for the sharp rise in consumer prices that discouraged consumers from spending amid the deepening slowdown of the broader economy.
The latest numbers offer no positive signs yet. The country’s consumer price index rose 4.2 percent in December from a year earlier. Core inflation, which excludes volatile oil and food costs, grew 3.6 percent from a year earlier, the largest hike for last year.
For all of 2011, Korea’s inflation rate hit the upper ceiling of the BOK’s 2-4 percent target band for 2010-2012. The 4-percent growth last year was attributed to the reshuffling of items that make up the consumer price index. Without such modification, analysts said the 2011 headline inflation would top 4.4 percent.
Kim, as the chief of the central bank, seemed to believe that such critical review is unfair.
“The Bank of Korea’s various tools and efforts should be analyzed and reviewed closely,” Kim said in his message. “And we need to explain in detail what the central bank can do and cannot do, as well as the effects of monetary policy in the fast-changing international financial market.”
Kim’s stance was that the stubbornly high inflation growth last year was out of reach for the central bank, and there is misunderstanding or unfair judgment in the media and the public that should be addressed by the new Communication Department.
Analysts said the problem is not the lack of communication but the BOK’s indecision in tackling the inflation with its monetary policy.
The central bank froze the benchmark rate at 3.25 percent for the sixth straight month in December, citing greater external uncertainties such as the eurozone debt crisis and a global slowdown.
The BOK had raised the rate five steps since July 2010, but the rate hike stopped in June last year. While its policymakers weighed various options that would help the country see steady economic growth, the eurozone fiscal crisis flared up in August, sending a shock wave to the global financial market.
By Yang Sung-jin (
insight@heraldcorp.com)
