Bank of Korea Gov. Kim Choong-soo said Tuesday that the effects of monetary easing by developed countries to revitalize their economies were winding down.
In a meeting with a group of corporate executives, Kim said that monetary easing of key international currencies such as the U.S. dollar, the euro and the yen boosted market liquidity.
However, he questioned whether the money had appropriately flowed into small and medium enterprises, the backbone of the real economy, reiterating the central bank’s position of prioritizing a sound credit policy over monetary policy.
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Kim Choong-soo (Ahn Hoon/The Korea Herald) |
His remarks, which came nine days before the central bank’s next monetary policy committee meeting, suggested that the central bank would keep its key base rate unchanged at 2.75 percent, analysts said. The key rate has been frozen for sixth straight months.
Despite market speculation of a rate cut, the BOK instead opted this month to ease its credit policy by increasing loan facilitations to SMEs from 9 trillion won ($8.1 billion) to 12 trillion won. The BOK had been pressured by the government to cut its key rate to further stimulate the economy, along with the country’s planned fiscal stimulus amid forecasts of low growth.
The Ministry of Finance projected 2.3 percent growth, while the BOK forecast 2.6 percent. Both recently revised down their growth forecasts from 3 percent and 2.8 percent, respectively.
Kim told the executives that aggressive easing had increased currency volatility in the foreign exchange market. He expected advanced countries to in time reverse their unorthodox approach to pump money into the markets and gradually normalize their policies as their economies improved this year.
The governor also shared concerns over a weakening yen that was leading to fierce competition between Korean and Japanese manufacturers, and expressed the need to create an eco-system where SMEs and venture start-ups could easily access funding for the development of a creative economy.
By Park Hyong-ki (
hkp@heraldcorp.com)
