Bank of Korea’s Moon Supports Keeping Rates on Hold for Now
“There are good reasons why people tend to be more optimistic this year than last year,” Moon, 52, said in an interview in Seoul last week. There’s no “important reason to take monetary-policy actions quickly” unless the South Korean economy declines further, he said.
Central bank policy makers meet Feb. 14 to set rates as Hyundai Motor Co. (005380) and Samsung Electronics Co. (005930) grapple with won gains and the likelihood of economic and fiscal policy shifts after the Feb. 25 inauguration of President Park Geun Hye. Moon says business confidence and investment may gain in South Korea as risks recede from Europe’s debt crisis and the so-called fiscal cliff of spending cuts and tax increases in the U.S.
Policy makers need to “wait and see” as South Korea’s economy shows signs of improving after already hitting bottom, Moon said. “I don’t think we’re in a very urgent situation.”
The won extended gains after Moon’s comments, rising 0.9 against the dollar to 1,088.10 as of 11:22 a.m. in Seoul. The currency strengthened 1.2 percent to 11.74 per yen.
As North Korea shows signs of preparing for a nuclear test, Moon said that developments within that nation tend to have a “very limited” effect on South Korea’s economy, including small and temporary disturbances to financial markets.
While a rate increase is unlikely in the “very near future,” it could become possible if the economy shows unexpected strength and inflation picks up, Moon said. South Korea is likely to “coordinate to some extent” when central banks globally exit from loose monetary policies, he said.
In January, Ha Sung Keun was the lone member of the seven- person monetary policy committee to call for a reduction in rates. Governor Kim Choong Soo and his officials kept the benchmark seven-day repurchase rate unchanged for a third month at 2.75 percent.
Moon’s view contrasts with Royal Bank of Scotland Group Plc last month forecasting an interest-rate reduction at the next meeting after the central bank pared its forecast for this year’s economic growth to 2.8 percent from an October estimate of 3.2 percent. Analysts at HSBC Holdings Plc and Barclays Capital predict no change.
Japanese Prime Minister Shinzo Abe’s campaign to expand monetary easing and revive his nation’s economy is driving down the yen, aiding exporters of electronics and automobiles who compete with South Korea. The won has gained about 22 percent against the yen in six months.
“We have good reason to be worried about rapid depreciation of the yen,” Moon said. At the same time, “it is too early” for the Bank of Korea to consider taking any action, he said, adding that policy makers willl monitor currency volatility for any effects on economic and price stability.
The policy maker expressed concern about the likelihood of increased welfare spending by the new president.
“On the one hand, it’s necessary but on the other hand, it’s worrisome,” Moon said. “Simply giving money to people does not help boost potential growth and it can jeopardize fiscal soundness.”
Moon joined the policy committee in April last year for a four-year term after teaching international economics and finance at Seoul National University.
To contact the editor responsible for this story: Paul Panckhurst at email@example.com