BOK advised to enhance communication with market
Suh Young-kyung’s four years as a board member at the Bank of Korea (BOK) were marked by challenges. The unprecedented economic effects caused by the pandemic, coupled with high inflation, put the monetary board members in a difficult position about policy rate decisions.
“From the position of the central bank, it was really difficult to estimate the situation and anticipate the future,” Suh said at a press meeting on Tuesday. Her term will end on April 20.
“Yet, I believe that we have performed the challenging duty of stabilizing prices and achieving financial stability, both domestically and externally, quite well,” she added.
The outcome of the board’s deliberation can be observed through the fluctuations in benchmark interest rates.
In May 2020, in response to COVID-19, the policy rate was reduced to an all-time low of 0.5 percent, where it remained for one year and three months. Subsequently, in 2022, as the prolonged pandemic led to the highest inflation in decades, the central bank implemented two big steps, hiking interest rates by 0.5 percentage points each time, bringing the rate to over 3 percent for the first time in 10 years.
Still, Suh believes the current financial situation has yet to be alleviated.
“The continuous rise in agricultural and fisheries product prices has heightened economic uncertainty, compounded by vulnerabilities in private debt and risks surrounding real estate project financing. Despite a reduction in the inflation rate, its persistently high level remains a concern,” Suh said, adding that such components pose challenges in determining the appropriate direction for monetary policy. Suggesting implications and outlining future tasks for monetary policy, Suh advised the BOK to enhance communication with the market through measures such as forward guidance and to employ a variety of policies to complement monetary policy efforts.
“There is a need to deepen our analysis not only of macroeconomic conditions but also of microeconomic areas, such as industry and employment. Furthermore, the effectiveness of monetary policy can be significantly boosted by adopting complementary policies, including those related to balance sheet strategies,” Suh said.
Regarding her successor, Suh believes that a female member with experience in the industry would be an asset as a way to create more balanced and diverse decision-making on the board.