BOK nominee emphsizes on communication and trust

At his parliamentary confirmation hearing on Wednesday, Lee Joo-yeol, nominee for the Bank of Korean governor, said, “The central bank has not been adequately communicating with the market.” Analysts say that Lee indirectly criticized monetary policy of outgoing governor Kim Choong-soo, who will retire at the end of this month, and that he intends to beef up communications with the market.

When asked the reason the central bank’s Monetary Policy Committee kept the rate intact unlike market expectations that the benchmark interest rate would be cut in April last year, Lee said at the confirmation hearing on the day that “I think assessment that the policy measure was not in compliance with market expectation means that there was problem in communications.” On the criticism that market’s trust in the Monetary Policy Committee has waned, Lee said, “It was an assessment resulting from failure to implement (policy) as it promised (with the market),” in admitting to the Bank of Korea’s lack of communications and deterioration of its credibility.

Lee singled out regaining of trust as the utmost priority that the central bank should place. He said, “The cornerstone of the central bank’s monetary policy is trust,” adding, “The bank will establish tradition of compatibility between words and acts through predictable policies.” On “forward guidance (the market’s suggesting of a barometer by which to set the direction of monetary policy),” which the central banks of advanced countries including the U.S. have introduced, Lee said, “I think it is worth considering.”

At the confirmation hearing, he stopped short of clarifying specific opinion on the future direction of monetary policy. He did not make it clear whether he belongs to the “hawkish” faction that values the bank’s independence and inflation control, or “dovish” faction that emphasizes growth, a matter the market wants to know.

Asked by lawmakers how he will manage the benchmark rate, Lee only gave an answer based on principle, saying, “The bank must seek a right balance between inflation and growth.” On the question of how he will handle if the bank’s policy goals are in conflict with the government, he declined to give an immediate answer, by saying, “The goal of both parties is to make contributions to national development.” On the issue of West Wing meetings of chief economic policymakers at the presidential office, he said, “I will attend selectively.”

He picked “widening wealth gap” as the biggest problem the Korean economy faces. On the matter of household debts that have exceeded 1,000 trillion won (940 billion U.S. dollars), the nominee said, “Though it imposes burden on growth by curbing private consumption, and narrows the room for policy options, it will not spread into a crisis of the financial system,” adding, “It is important to manage household debts to ensure they would not increase beyond income growth. Expanding jobs will help address household debts.”

Wednesday’s confirmation hearing is the first to be conducted on a candidate for the central bank chief. Since revision of the Bank of Korea Act in 2012, a candidate for the central bank governor has also been included in the list of top officials subjected to parliamentary confirmation hearing. After the end of the hearing, the parliamentary Strategy and Finance Committee immediately adopted his confirmation hearing report. Lee will be officially inaugurated on April 1.