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[Editorial] Revised target

April 14, 2011 - 17:55 By 최남현
The central bank was more realistic than before when it abandoned its policy goal of keeping this year’s inflation at 3.5 percent or lower, raising the target rate to 3.9 percent this week. Still, the bank took no action to convince the public that the new goal was attainable.

In revising the targeted rate of inflation upward, the Bank of Korea maintained its earlier growth outlook for this year ― 4.5 percent. The International Monetary Fund agreed on the growth outlook. But it parted with the central bank when it revised its inflation forecast upward to 4.5 percent.

Should consumer prices maintain the upward momentum they had during the first three months this year, it would be extremely difficult to push down their increase to 3.9 percent or lower in 2011. The consumer price index was posted at 4.7 percent last month, the third consecutive month in which the index was higher than 4 percent.

Though inflationary pressure was building, the central bank took no action to rein it in. In keeping the bank’s benchmark rate unchanged at 3 percent, it said it would watch what impact its earlier rate increases would have on consumer prices before making another rate increase.

When its governor said he had a “strong commitment to the process of normalizing the benchmark rate,” he was virtually acknowledging that the rate was abnormally low. If so, the bank’s Monetary Policy Committee should have raised the rate when it had a monthly policy review earlier in the week. But it decided to keep it intact.

Undoubtedly, the central bank must have taken into account changing economic conditions, both domestic and global, in determining not to raise the rate this time. But what it should keep in mind is that no task is more important than inflation control.