South Korean Government Urges Central Financial Institution To Delay Charge Rise
June 01, 2010, 12:04 AM EDT
By William Sim and Eunkyung Seo
June 1 (Bloomberg) — South Koreas government reiterated its call for the central bank to hold off raising the benchmark interest rate, a day after pledging to reduce its role at policy meetings over concerns about the banks independence.
The Bank of Korea should wait and check the second- quarter economic data before deciding on the next rate move, Finance Minister Yoon Jeung Hyun said in an interview with the Maeil Business newspaper published today and confirmed by his ministry. The data could be disappointing because of Europes debt crisis, cold weather and a poor jobs market.
Yoons comments came as reports today showed exports surged and inflation accelerated last month as Asias fourth-largest economy strengthens. Yesterdays decision to remove the government official from the room when the vote is held represented a victory for the central bank after some board members complained about his presence.
Nothing has changed, said Kwon Young Sun, an economist at Nomura Holdings Inc. in Hong Kong. They make a little change to the process, and the minister still goes out talking about rates.
The problem is market players listen more to what the government says on rates than to what the central bank says, Kwon said. Thats because the government has been the winner most of the times when its rate signals conflict with those of the central bank.
Kims Predecessor
President Lee Myung Baks administration started dispatching a vice finance minister to the gatherings in January, a month after Governor Kim Choong Soos predecessor said the bank shouldnt be too slow to increase borrowing costs. The Bank of Korea has kept rates at a record-low 2 percent since February last year and next meets to review borrowing costs on June 10.
Weve agreed to change the procedures from the June policy meeting, Yoon Jong Won, director general of the Finance Ministrys economic policy division, said by telephone yesterday. The current arrangement can give a wrong and unnecessary impression that the government is putting pressure on rate policy by the vice finance minister sitting in during the vote, he said. The Maeil newspaper had reported the change earlier.
–With assistance from Seonjin Cha in Seoul. Editors: Michael Heath, Michael Dwyer
To contact the reporters on this story: William Sim in Seoul at wsim2@bloomberg.net; Eunkyung Seo in Seoul at eseo3@bloomberg.net.
To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net