Internal Bank of Korea Debate Erupts Over Interest Rates

Comments on interest rates by the Bank of Korea governor following the decision to freeze the benchmark interest rate have sparked a dispute within the bank’s Monetary Policy Committee.

Gov. Kim Choong-soo finally spoke on criticism that the rate freeze was caused by a lack of communication with the markets. At a workshop Sunday with reporters covering the banking sector, he said, “Many people say the direction (of monetary policy) has shifted, but this is not true. While shifting the policy is important, I think it proper not to tell when.”

Kim hinted at leaving the rate policy unchanged for the time being.

Other committee members disagree with him, however. Committee member Kang Myung-hun warned Sept. 13 of people taking hints of rate hikes just from Kim`s comments. Kang said, “(The media) seem to be listening too attentively to Gov. Kim’s words. Kim is only one of six committee members.”

Kang reiterated his view in a column he contributed to a newspaper Friday, sparking dissension both within and outside the central bank. He wrote, “The fact should not be overlooked that the key rate is decided by all seven members (six since one spot is vacant) of the committee and Gov. Kim is only one of the voters. Gov. Kim should`ve properly represented the whole committee when delivering comments at the news conference following the rate freeze, but he appears to have stressed his own opinions a bit strongly this time.”

On Kang’s comments, Kim avoided a direct response, saying, “Disputes (over communication) are inevitable since the organization has more than 2,000 workers. The Bank of Korea’s decision is always the product of anguish that allows for no complacency.”

On Japan’s intervention in its foreign exchange market due to the high yen, Kim said, “Japan cannot curb the yen’s value just by itself. It needs policy cooperation from other countries including the U.S. and China.”

achim@donga.com