Signs of a feud between the Bank of Korea and the Finance Ministry are emerging as their chiefs are taking different stances over monetary policy.
Hyun Oh-seok, the first deputy prime minister and finance minister, stressed the need to lower the benchmark interest rate in a bid boost the sagging economy.
In contrast, BOK Gov. Kim Choong-soo immediately reiterated that side effects from low interest rates could undermine Korea’s economic fundamentals.
Kim, one of the seven-member panel for the BOK’s rate-setting committee, said Tuesday that “global investment banks cast worries over possible weaknesses in the Korean economy” due to the low interest rates.
Last week, he said the central bank would not test how the Korean economy performs and responds to its monetary policy.
His remarks came in defense of the central bank’s decision to keep the benchmark rate untouched at 2.75 percent in March for the fifth straight month, stressing that the global economy, albeit slowly, is heading for recovery.
Kim also said the global economy, especially the U.S., was heading toward winding down their monetary easing policies by bringing an end to bond purchases and normalizing key rates.
On Monday, Hyun told a news briefing that “the government’s policy packages definitely involve finance management policies,” hinting at the necessity of cutting the rates.
About a year ago, as then-president of the Korea Development Institute, Hyun criticized the BOK for its interest rate-setting policies.
Hyun had said the central bank failed to catch the opportunity to raise the nation’s benchmark interest rate, reproaching the central bank’s “lukewarm attitude.”
He had claimed that the BOK pursued an expansionary policy after the global financial crisis in 2008 to supply much-needed liquidity. “But it ultimately missed the timing for a rate hike and inflation hovered above the central bank’s target.”
During the Lee Myung-bak administration, BOK Gov. Kim showed little disaccord with the Finance Ministry over the rate-setting policy.
By Kim Yon-se (
kys@heraldcorp.com)
