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S. Korean Ministry to Reduce BOK Rate Meeting Role
Source: koreaherald.com
Source Date: Tuesday, June 01, 2010
Country: Korea (Republic of)
Created: Jun 07, 2010

Korea’s government plans to reduce its role in central bank policy meetings after the presence of a representative at the gathering spurred concern about the bank’s independence. The vice finance minister who attends the sessions will leave during the Bank of Korea’s vote on interest rates, Yoon Jong-won, director general of the Finance Ministry’s economic policy division, said Monday“We’ve agreed to change the procedures from the June policy meeting,” said Yoon. “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, Yoon said.

The decision is a victory for the central bank after some board members pressed for the vice minister to leave the room during the vote. President Lee Myung-bak’s administration started dispatching its representative to the gatherings in January, a month after Kim’s predecessor said the bank shouldn’t be too slow to increase borrowing costs. “The change will definitely help ensure the central bank’s independent decision making,” said Choi Seok-won, an analyst at Samsung Securities Co. in Seoul. “But I believe the government has agreed to the change on expectation that the new central bank governor will fully appreciate the government’s position and make decisions on rates not far from it.”

President Lee, who predicts growth of more than 5 percent this year, has made the economy and jobs his top priority before provincial elections this week. Governor Kim Choong-soo is a former economic adviser to the president and the government has repeatedly said that it’s too soon to raise rates from a record- low 2 percent as it seeks to stoke growth. “Central bankers, unlike politicians who are destined for a short-time horizon, must be far sighted,” said Korean Prime Minister Chung Un Chan, who spoke at a central bank conference luncheon in Seoul on Monday. “That should be respected and preserved all the more”, given the global financial crisis.

The economy expanded 1.8 percent in the first quarter from the previous three months. In April, exports climbed 30 percent from a year earlier, the sixth straight gain, as the global recovery spurred demand for Korean-made products like Samsung Electronics Co.’s semiconductors and Hyundai Motor Co.’s cars. Consumer prices rose 2.6 percent in April from a year earlier, quickening from 2.3 percent in March, while remaining within the central bank’s target range of between 2 percent and 4 percent, on average, for the three years to 2012.

Pressure on Governor Kim to join Asian counterparts from India to China in tightening monetary policy has eased as policy makers gauge the fallout from Europe’s debt crisis and escalating military tension with North Korea. Samsung’s Choi said that while the central bank may have to keep rates on hold at its June 10 meeting due to the volatile financial markets, it needs to raise them soon in order to prevent further problems. (Bloomberg)
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