New BOK Monetary Policy Committee Starts on 21st... "Everyone Has No Choice but to Be Doves"

Unprecedented Economic Crisis Due to COVID-19
Maximum Support Measures Expected Regardless of Doves or Hawks
Participation of Pro-Government Figures and Progressive Economists

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] As the economic impact of the novel coronavirus infection (COVID-19) grows and central banks worldwide engage in 'money printing,' the Bank of Korea's Monetary Policy Committee (MPC) is starting anew with a fresh lineup. Among the new members are pro-government figures and progressive economists, leading to expectations that the Bank of Korea will align its policies closely with the government's COVID-19 measures. Additional interest rate cuts and liquidity supply measures are also anticipated in response to the COVID-19 fallout.

According to the Bank of Korea on the 20th, existing MPC members Jo Dong-cheol, Shin In-seok, and Lee Il-hyung ended their terms and retired on this day. Jo and Shin were considered representative doves (favoring monetary easing) within the previous MPC, and the market had predicted that their departure would tilt the MPC toward a hawkish (favoring monetary tightening) stance.

However, given the unprecedented crisis faced by the domestic and global economies due to COVID-19, the new MPC is expected to move in a direction that reviews "all cards the Bank of Korea can play." Newly appointed member Seo Young-kyung said in an interview with Asia Economy, "I believe it is now meaningless to distinguish between doves and hawks," adding, "(Considering the COVID-19 situation) all members inevitably become doves."

Since last month, the Bank of Korea's MPC has been sending dovish messages to the market consecutively. Even Lee Ju-yeol, the Bank of Korea Governor, has hinted at the possibility of additional interest rate cuts and further purchases of government bonds. Seo said, "Support should be dovish, but monetary policy must help the real economy recover," emphasizing, "It is important to create specific measures." Seo also mentioned that the Bank of Korea should consider purchasing corporate bonds through a special purpose vehicle (SPV) depending on market conditions. However, he added, "It should be done while adhering to principles and the scope of support."

New member Joo Sang-young, regarded as a progressive economist, has repeatedly mentioned quantitative easing tailored to Korea's situation. Since the Bank of Korea has already started a "Korean-style quantitative easing" by supplying unlimited liquidity to financial institutions, the MPC is expected to discuss other forms of quantitative easing more actively if additional rate cuts occur. Because Korea is not a key currency country, if interest rates are lowered to the effective lower bound (around 0.5%), alternative methods of supplying liquidity to the market will be necessary. Cooperation with the government is also expected to strengthen. Joo has argued in columns that to respond to the combined real and financial crisis, the central bank must create a cooperative model with the government.

New member Jo Yoon-je, considered a pro-government figure, has not expressed specific opinions on the Bank of Korea's direction. However, since he played a role in preparing President Moon Jae-in's economic pledges during the last presidential election, he is expected to contribute to ensuring the smooth implementation of the government's COVID-19 response measures.

Meanwhile, within the Bank of Korea, there are voices opposing the appointment of pro-government figures as new members. The Bank of Korea labor union demanded the reappointment of MPC members to the Blue House on the 17th. Kim Young-geun, chairman of the Bank of Korea labor union, issued a statement saying, "It is questionable whether a fair personnel system operated by the Blue House was in place for the appointment of members," adding, "The independence of the Bank of Korea is continuously being attacked by parachute appointments of members who support inappropriate calls for interest rate cuts, the introduction of capital expansion funds, and attempts to easily mobilize the Bank of Korea's issuance power instead of fiscal policy."

This content was produced with the assistance of AI translation services.