Korea Central-Bank Head To Keep Focus on Inflation [WSJ]
By JUNG-AH LEE
April 4, 2006
SEOUL, South Korea -- Newly appointed Korean central-bank Gov. Lee Seongtae pledged yesterday to keep policy focused on inflation, but said the central bank will take "bold" decisions in times of uncertain economic conditions.
He reiterated that the resurgent real-estate sector is a concern and said property prices are an important factor in determining monetary policy, the first time the central bank is admitting that it considers the real-estate sector in policy making.
Central-bank policy should be consistent, but "if circumstances change, it is appropriate to use policy in line with the changed environment," Mr. Lee said.
"It has become more difficult to predict economic conditions accurately. As a result, the central bank has to be careful in making policy decisions...but at times, it needs to make bold decisions despite risks stemming from such uncertainties," said Mr. Lee in his inaugural speech.
His closely watched remarks propelled bond yields higher as participants interpreted his comments to mean a more hawkish central bank ahead. The retirement of two other monetary-policy committee members, expected to be announced in the next week or two, is also keeping the bond market nervous.
Bonds, which sold off in recent sessions ahead of Mr. Lee's inaugural address yesterday, fell further on his remarks even though March inflation data, released before the markets opened, were far weaker than expected. The five-year Treasury yield rose as high as 0.06 percentage point to 5.20% after opening at 5.14%.
Most economists maintain that the central bank will stand pat at the next monetary-policy meeting on Friday, but a few think the Korean central bank could increase its call rate by 0.25 percentage point to 4.25%. Since the central bank turned to a tighter policy in October, the call rate has been raised three times, each by 0.25 percentage point, to 4%.
Former central-bank Gov. Park Seung left the call rate unchanged in March and indicated that monetary policy was nearing neutral, meaning the call could peak at 4.25% to 4.50%, economists said.
"As the governor has just started his term, I don't think he will shock the market by increasing the rate this month," said Lee Dong-Su, an economist at Tong Yang Investment, adding that as the government just adopted new property measures to restrain the rise in property prices, Mr. Lee will likely move only after assessing the impact of the steps. |
