- Central bank says change will give time to see policy impact
- Fewer meetings will provide longer-term perspective, BOK says
The Bank of Korea said it will reduce the number of its rate-decision meetings to eight from 12 a year so that it has more time to consider the impact of monetary policy.
The changes will take effect starting in 2017, with monetary policy decisions likely to be made every six to seven weeks, the central bank said in a statement on policy direction released Thursday. The BOK board still will meet 24 times a year after the change, and can hold impromptu meetings if there is a need for immediate policy response to economic events.
The change enables the board to direct monetary policy with a longer-term perspective and will prevent financial markets from reacting sensitively to monthly economic data, according to the statement. The BOK will hold rate-decision meetings when it updates South Korea’s economic outlook in January, April, July and October, and four other times in between those meetings.
The shift puts the BOK on an equal footing with other major central banks and will help it consider external changes, the statement showed. The Bank of Japan will hold eight board meetings a year starting in 2016, down from 14 currently.
“Economic situations don’t easily change within a month and the BOK’s rate decisions have been too often,” said Seo Hyang Mi, a Seoul-based fixed-income analyst for HI Investment & Securities Co. “I guess the BOK couldn’t ignore the trend of other advanced economies’ cutting monetary policy meetings.”
The central bank also will release the name or names of any dissenters on monetary policy on the day of the board’s decision starting in 2016. Currently, the names of any dissenters are announced when the meeting’s minutes are released several weeks later.
The BOK also said in the statement that it will maintain its looser monetary policy stance in 2016 as the pace of the domestic economy’s recovery is gradual and upward pressure on inflation isn’t significant.
A rapid capital outflow from Korea isn’t likely after the Federal Reserve’s increase in its benchmark rate as South Korea has a current-account surplus and Europe and China are expected to continue their easing stance, the BOK said. A rapid increase in Korea’s household debt and worsening conditions of indebted large companies are potential risks to the financial system.
The central bank held its key interest rate unchanged at a record low of 1.5 percent at the Dec. 10 meeting, a sixth month of no change after lowering the rate in June. Earlier this month, the BOK released a new inflation target to be applied from 2016-2018 at 2 percent, a change from 2.5 percent to 3.5 percent currently.