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Central Bank Gov. Freezes Rate in Final Month at Job

Posted March. 12, 2010 09:45,   


“Only human.”

Bank of Korea Gov. Lee Seong-tae, who will resign at the end of this month, had this short comment in English to say to a news conference yesterday after chairing his last meeting of the Monetary Policy Committee.

His comment seems to reflect the difficulties he had in formulating monetary policy that greatly affected the economy amid uncertainty.

Inaugurated in April 2006, Lee struggled with the global financial crisis for about two years of his four-year term. The volatile conditions he had to endure are reflected in that the benchmark interest rate rose from four percent when he took the job to 5.25 percent, but then dropped to two percent.

His “only human” comment also seems to hint at keeping interest rates low, a step back from his belief that a hike is inevitable to keep inflation stable.

The committee yesterday froze the benchmark interest rate at two percent for the 13th straight month, the longest freeze in the country’s history. Lee has chaired 49 committee meetings on setting interest rates over his term.

The committee raised the interest rate five times and cut it six times, while implementing a freeze 38 times.

Lee tried to curb rising real estate prices early in his term, giving the impression of an inflation fighter putting priority on price stability.

Surprisingly, however, he raised the rate a quarter of a percentage point in June 2006, just two months after his inauguration.

This went against the prediction that he would not defy the Roh Moo-hyun administration because the president was his senior alumnus from Busan Commercial High School. Since President Lee Myung-bak’s inauguration, he has feud with the administration, warning of asset bubbles and inflation risks.

An interest hike has posed an obstacle to Gov. Lee, however. Since the economy began showing rapid recovery from the second half of last year, he has clashed with the government over when to implement an exit strategy.

Raising the benchmark interest rate now seems to be the job of the next governor. The majority of experts say a rate hike is unlikely in the first half of this year.

Gov. Lee said yesterday a rate increase will come soon, saying, “There is a consensus (among Monetary Policy Committee members) on adopting an exit strategy at an appropriate time,” adding, “We’re in the phase of confirming the timing and coordinating different opinions.”

He asked his successor to do what he or she can to contribute while managing the circumstances. “Since we cannot suddenly go to the exit, we should move to the door in advance,” he said.

The five candidates for Gov. Lee’s successor are Presidential Council on National Branding Chairman Euh Yoon-dae; ambassador to the Organization for Economic Cooperation and Development Kim Choong-soo; Financial Supervisory Service Gov. Kim Jong-chang; former Finance Minister and incumbent National Competitiveness Council Chairman Kang Man-soo; and former vice governor of the central bank and current Leading Investment and Securities CEO Park Chul.

Under the Bank of Korea Law, a governor is appointed by the president after Cabinet deliberation for a four-year term. A governor can serve more than one term but Gov. Lee, who was appointed by the Roh administration, is not expected to be retained.

weappon@donga.com jaeyuna@donga.com