Kim Choong-soo, governor of the Bank of Korea [NEWSIS]

Bank of Korea Gov. Kim Choong-soo yesterday urged close cooperation between monetary policy makers and macro-prudential policy implementers in order to achieve financial stability.

“Without cooperation, it would be difficult to expect satisfying synergy,” Kim said yesterday in a keynote speech at an international seminar organized by the BOK on “Macroprudential and Monetary Policies.” Prof. Charles Goodhart of the London School of Economics and Political Science and Prof. Dimitrios Tsomocos of Oxford University were invited to take part in the seminar. Macro-prudential analysis refers to the comprehensive study of a financial system.

“If the effects of the two policies overlap or are in conflict and they are not operated harmoniously, this may give rise to the problem of excessive or offsetting policy effects, as they both work by way of changes in financial institutions’ balance sheets,” said Kim

The remarks were made at a time when the government, especially the Ministry of Strategy and Finance, and the central bank have been at odds over the direction of monetary policy. The Finance Ministry, along with the Blue House, has been indirectly pressuring the BOK to lower its key interest rate to in line with the ministry’s policy of stimulating the economy by lowering its estimate of GDP growth this year and introducing a supplementary budget. Pressure continued yesterday as Hyun Oh-seok, deputy prime minister of economic affairs and finance minister, told the foreign press the government “will use all available tools, including fiscal and monetary measures, and deregulation to create jobs and boost the economy.”

There are concerns, however, mostly within the BOK that lowering the benchmark rate would increase household debt. The central bank will hold a monetary policy committee meeting Thursday and decide the benchmark interest rate.

“In order to achieve financial stability through the harmonization of operations between the two policies [macroprudential and monetary], it is essential for the various policy authorities to cooperate closely,” Kim said.

Lack of cooperation could limit the effectiveness of policy measures. The BOK governor, for example, noted that “although major economies have implemented bold macroeconomic policies since the [financial] crisis, including a massive expansion of fiscal spending and interest rate cuts for economic pump-priming, fiscal deficits swelled enormously and a sovereign credit crisis concentrated above all in southern Europe erupted.”

In his speech, Kim also emphasized the role of the central bank to autonomously make monetary policy.

“The role of the central bank is important, particularly since it is in charge of monetary policy and forms the mainstay of macroprudential policy implementation,” he said. “While carrying out monetary policy so far, central banks have been equipping themselves as systemic regulators to take the lead in implementing macroprudential policies by building up expertise in evaluating overall economic conditions and financial market stability based on their process and analysis of macro and financial data.”


By Lee Eun-joo [angie@joongang.co.kr]