Deputy Prime Minister Choi Kyung-hwan and Bank of Korea Governor Lee Ju-yeol are showing signs of discord in economic policy management. The former is pushing for an additional key rate cut and the latter is expressing displeasure about it.
“A benchmark rate cut is like a double-edged sword,” said the governor of the central bank on Oct. 7 during the parliamentary inspection on the bank, adding, “Anyone who is influential enough needs to refrain from making a comment about the interest rate.”
Earlier on Sept. 24, he had invited economists to explain the result of the G20 Finance Ministers and Central Bank Governors Meeting. “Most of the participating countries agreed on the necessity of an aggressive policy for economic recovery, but they put particular emphasis on restructuring rather than fiscal and monetary policy,” he mentioned, continuing, “Efforts for structural reorganization and innovation in the labor market for higher productivity were considered very important by all of them.” The remarks have collided with the stance of the Ministry of Strategy and Finance led by the Deputy Prime Minister, who is trying to stimulate the national economy by means of expansionary fiscal policy and key rate cut.
Also, the remarks reflect the governor’s worries about any impairment of the independence of the central bank. “It is a matter of course that the governor is prudent about the benchmark rate,” said a former Bank of Korea employee, adding, “What he recently said is more about the independence of the bank and the Deputy Prime Minister’s influence on the market than about any dispute between the two heads of the Korean economy.” Not a few market participants’ consensus is that the Bank of Korea would have to lower the benchmark rate before the end of this year.