One question that persists in the banking sector is whether the central bank will change its benchmark rate that has been frozen for 11 months.
Stronger-than-expected economic growth has raised expectations of higher rates, while many still predict the central bank will keep it steady given ongoing risks such as tensions in Ukraine and signs of a slowdown in China.
But one thing is for sure: There will be no surprise interest rate changes in the future ― at least according to the new central bank chief, who is calling for continuity and clarity on its monetary policy.
Bank of Korea Gov. Lee Ju-yeol. ( Yonhap)
“There will be no sudden interest rate adjustments,” Bank of Korea Gov. Lee Ju-yeol told reporters on the sidelines of the Asian Development Bank’s annual meeting in Astana, Kazakhstan, last week.
The BOK holds a monetary committee meeting every month to determine the key interest rate, or base rate. Changing the base rate influences the rates of loan products such as mortgages, credit and savings accounts.
The central bank’s monetary policy, Lee said, is focused on how to manage the market’s expectations.
Lee admitted, however, the BOK has failed to communicate with the market. That is partly because of the perception that the BOK is often unpredictable, which means that rate changes have never been a certainty.
Lee cited as an example the May 2013 policy rate, which it unexpectedly lowered by 0.25 percentage points to 2.5 percent.
“We shouldn’t make a left turn when we signal to turn right,” he said, citing a remark made by his predecessor Kim Choong-soo, who was often criticized for saying one thing and doing another.
Lee, who was a senior deputy governor under Kim, said he would give a signal at least two to three months ahead of any change to the central bank’s policy in order to regain the “lost credibility” from the market.
“If we say this is our inflation target then we should keep the target. That’s how we can build up trust,” Lee said.
Lee repeated that communication with the market is crucial to convey to the public that the central bank’s actions are important to the broader economy.
“Communication is based on trust. For that we need to do what we promised to do,” he added.
His remarks came as the BOK is to hold a rate-setting meeting on Friday. Experts expect the central bank will keep its key rate unchanged as there are not many major factors that require a change in monetary policy. The key interest rate has remained at 2.5 percent since it was lowered from 2.75 percent last May.
By Oh Kyu-wook (
596story@heraldcorp.com)