BOK’s Kim Says Appropriate Policy Rate May Be 0.125 Point Above Dot-Plot Mean or Median
Summary
- Monetary Policy Board member Kim Jin-il said the policy rate he sees as appropriate would be 0.125 percentage point above the dot plot average or median.
- He said some sacrifice in growth should be accepted to prevent a major financial crisis, describing the current stance as a form of insurance.
- Kim said he is keenly aware of the difficulty of achieving both price stability and financial stability, while stressing the need to manage volatility in household debt, housing prices, capital flow risks, the won-dollar exchange rate and government bond yields.
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“The policy rate level I see as appropriate would likely be about 0.125 percentage point above the average or median,” Kim Jin-il, a member of the Bank of Korea’s Monetary Policy Board, said on May 15.
Kim said it is worth accepting some sacrifice in growth to prevent a major financial crisis. “Even if a crisis does not actually occur, it is a kind of insurance.” The remarks amounted to a public acknowledgment of his hawkish leanings.
Asked whether he had decided where to place his dot on the board’s dot plot for the May Monetary Policy Board meeting, Kim said he would need to hear the views of the six other board members and make his own interpretation before deciding.
He also voiced concern about inflation in his inaugural speech that day. Inflation worries stemming from the war in the Middle East have intensified, he said, and while economic conditions are improving, led by the information-technology sector, uncertainty over global investment remains high. Polarization at home is also persisting.
On financial stability, Kim said issues surrounding household debt and housing prices remain unresolved. He also said caution over risks tied to capital inflows and outflows has grown further as global interconnectedness expands.
Under those complex domestic and external conditions, Kim added that he is newly realizing how difficult it is for a central bank to achieve its core policy goal of contributing to the national economy by promoting price stability while paying attention to financial stability through monetary and credit policy.
Kim also commented on the recent sharp rises in the won-dollar exchange rate and South Korean government bond yields. “Who knows what level of the exchange rate is appropriate,” he said. Still, he said managing volatility is necessary.
“The level itself is unknowable, but managing volatility seems beneficial for everyone. There seems to be broad agreement that, if left alone, it can move excessively.”
Shim Seong-mi, Hankyung.com reporter smshim@hankyung.com
Korea Economic Daily
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