Senior government officials have turned vocal in calling for monetary easing amid limitations in fiscal actions versus mounting challenges to the already-fragile economy, further burdening the Bank of Korea (BOK) as it deals with deepening market bets on lowered rates.
Deputy prime minister and finance minister Hong Nam-ki in a radio interview on Thursday expressed wishes for monetary backing to ultra-loose fiscal policy by saying he anticipated “a reasonable judgment from the monetary policy board in view of the economic conditions” while adding the decision is entirely to the BOK with law-protected independent monetary authority.
The BOK, which has kept the benchmark rate steady at 1.75 percent since the last hike in November 2018, holds a monetary policy meeting on July 18. The bond market has been experiencing a rare phenomenon of flattening and inversion in the yield curve with the government bonds from mid-to long dates of up to 50 years hovering way below the overnight rate with the three-year yield at 1.401 percent and the 50-year paper at 1.543 percent amid growing pessimism about the economy.
Attending the ASEAN+3 Finance Ministers’ and Central Bank Governors’ Meeting in Fiji in May, Hong voiced hopes on loosing in monetary policy in Korea regardless of opposite actions elsewhere. After a meeting with think tank heads last month, he said there had been a consensus that expansionary fiscal and monetary policies should go hand in hand.
“It is not desirable for government officials to comment on rate decisions that can influence the market,” said a senior BOK official on Thursday in apparent disgruntlement by the series of comments on rates.
BOK Governor Lee Ju-yeol has lately turned more dovish after reiterating on the limitations of a rate cut in already low-interest rate environment.
But verbal interference from outside can stall BOK action lest its cut action should appear as if taking orders from the government, market analyst said.
By Sohn Il-seon and Choi Mira
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]