Further Interest Rate Decrease For Economic Boost?

Economic circles are paying attention to the decision on interest rate by the Monetary Board on May 13th.

The Bank of Korea is attempting to lower interest rate with the argument for 3 percentage level of growth while the MDP and the Bank of Korea`s labor union is against it for various reasons including possibility of real estate speculation.

Especially, the labor union is making a huge splash in its dispute over a possible pressure from the outside forces such as the Bank`s administration and the government to lower interest rate.

The dispute sparked when President of the Bank Park Seung suddenly changed his attitude about lowering interest rate from strong opposition to strong support after attending an unofficial economic review meeting at Chongwadae on April 29th.

The Bank`s argument for lowering interest rate= President Park emphasized on April 30th, “If the economic growth rate for this year is expected to be under 4 percent or economic recovery gets delayed, we will need to introduce various economic stimulus measures including lowering interest rate further.”

Other bank officials estimated that this year`s growth rate would stand at 3 percent level, far worse than originally expected. The Bank also forecast that Asian nations including Korea would suffer from China`s economic slump.

For these reasons, the Bank argues for lowering call interest rate.

Opposition against further interest rate decrease= The Bank`s labor union said, “A research of economic experts shows that 62 percent of them responded that there would be no actual effect from lowering call interest rate.” On whether to lower the interest rate, 58.4 percent opposed the idea while only 41 percent agreed with it.

The MDP`s Policy Director Jung Se-gyun said on May 9th, “We should be careful not to stir real estate speculation when lowering interest rate to boost economy.”

But, a high official from the Bank said, “The decision will be made by the Monetary Board. And it is unreasonable to say that lowering interest rate will stir speculation when other government policies are the real cause for real estate speculation.”

Kwu-Jin Lim mhjh22@donga.com