New BOK Chief Nominee Likely to Focus on Price Stability, Market Communications

SEOUL, March 3 (Yonhap) – The nomination of a former veteran as the new head of the Bank of Korea (BOK) Monday is raising expectations that the central bank would further tilt toward keeping price stability and strengthen its communication with the market, analysts said.

Experts say Lee Ju-yeol, former senior deputy governor of the BOK, is likely maintain the current monetary policy stance and freeze the key rate for some time ahead. At least, analysts say, the possibility of a rate cut has been pushed aside. People who have worked with him in the past labeled him as more hawkish than dovish.

Supporting the view, the bond market lost ground on Monday, as market players saw Lee’s nomination as lowering chances of a rate cut.

Lee will become the first central banker to go through a parliamentary nomination hearing because of changes to the law. Incumbent BOK Gov. Kim Choong-soo’s four-year term expires at the end of March.

“The nomination of Lee, who was a long-time central banker, indicates that the BOK would focus on price stability,” said Kong Dong-rak, a fixed-income analyst at Hanwha Investment & Securities Co.

Seo Hyang-mi, a fixed-income analyst at Hi Investment & Securities, echoed the view. “There had been some market players’ bets for a rate cut due to expectations that a candidate who would be in line with the government would come (as BOK chief),” Seo said, adding that such possibility now seem to be erased.

Analysts add that while it does not necessarily mean Lee would not be in line with the government, given his career background, he is more likely to take a hawkish stance.

The BOK had frozen the key interest rate at 2.5 percent for the ninth straight month in February, as the local economy is improving amid low inflationary pressure.

Before the policy meeting in January, Goldman Sachs had raised the possibility of a rate cut, although it was a minority view in the market.

Experts say Lee, if and when confirmed, will be tasked with navigating the local economy as the Federal Reserve tapers its bond-buying monetary stimulus. He will also have to carry out what may become two contradictory tasks of supporting national economic growth and finding the right time for a policy rate hike.

Most importantly, the BOK will be asked to beef up its capacity to communicate with financial markets, experts say.

Market players have complained that the BOK under the leadership of Gov. Kim adjusted the key interest rate without giving enough policy signals, confusing the market.

“As Lee has extensive experience in managing the monetary policy as the former ranking official of the BOK, I think that the central bank’s capacity to communicate with the market is likely to be enhanced,” said Jean Lim, a research fellow at the Korea Institute of Finance.

During his brief encounter with reporters after the nomination, Lee was cautious about giving away his thoughts.

“In this critical time, I feel personally honored to be named as the BOK chief, but I also felt a grave responsibility,” Lee said. He sidestepped a question asking him whether he was a dove or a hawk.

If endorsed by parliament, Lee will be returning to the BOK with fanfare after leaving in early 2012 on not-so-amicable terms with Kim. Lee took a public jab at the governor at the time, criticizing him for his attempt to root out the tradition and culture of the central bank.

Kwon Young-sun, an economist at Nomura in Hong Kong, said in a report that Lee’s nomination suggests that President Park Geun-hye appreciates the central bank’s independence. Lee’s nomination is sound in terms of delivering a balanced view on the economy and policy, he said.