The Korea Times
amn_close.png
amn_bl.png
National
  • Politics
  • Foreign Affairs
  • Multicultural Community
  • Defense
  • Environment & Animals
  • Law & Crime
  • Society
  • Health & Science
amn_bl.png
Business
  • Tech
  • Bio
  • Companies
  • World Expo 2030
amn_bl.png
Finance
  • Companies
  • Economy
  • Markets
  • Cryptocurrency
amn_bl.png
Opinion
  • Editorial
  • Columns
  • Thoughts of the Times
  • Cartoon
  • Today in History
  • Blogs
  • Tribune Service
  • Blondie & Garfield
  • Letter to the Editor
amn_bl.png
Lifestyle
  • Travel & Food
  • Trends
  • People & Events
  • Books
  • Around Town
  • Fortune Telling
amn_bl.png
Entertainment & Arts
  • K-pop
  • Films
  • Shows & Dramas
  • Music
  • Theater & Others
amn_bl.png
Sports
  • Hangzhou Asian Games
amn_bl.png
World
  • SCMP
  • Asia
amn_bl.png
Video
  • Korean Storytellers
  • POPKORN
  • Culture
  • People
  • News
amn_bl.png
Photos
  • Photo News
  • Darkroom
amn_NK.png amn_DR.png amn_LK.png amn_LE.png
  • bt_fb_on_2022.svgbt_fb_over_2022.svg
  • bt_twitter_on_2022.svgbt_twitter_over_2022.svg
  • bt_youtube_on_2022.svgbt_youtube_over_2022.svg
  • bt_instagram_on_2022.svgbt_instagram_over_2022.svg
The Korea Times
amn_close.png
amn_bl.png
National
  • Politics
  • Foreign Affairs
  • Multicultural Community
  • Defense
  • Environment & Animals
  • Law & Crime
  • Society
  • Health & Science
amn_bl.png
Business
  • Tech
  • Bio
  • Companies
  • World Expo 2030
amn_bl.png
Finance
  • Companies
  • Economy
  • Markets
  • Cryptocurrency
amn_bl.png
Opinion
  • Editorial
  • Columns
  • Thoughts of the Times
  • Cartoon
  • Today in History
  • Blogs
  • Tribune Service
  • Blondie & Garfield
  • Letter to the Editor
amn_bl.png
Lifestyle
  • Travel & Food
  • Trends
  • People & Events
  • Books
  • Around Town
  • Fortune Telling
amn_bl.png
Entertainment & Arts
  • K-pop
  • Films
  • Shows & Dramas
  • Music
  • Theater & Others
amn_bl.png
Sports
  • Hangzhou Asian Games
amn_bl.png
World
  • SCMP
  • Asia
amn_bl.png
Video
  • Korean Storytellers
  • POPKORN
  • Culture
  • People
  • News
amn_bl.png
Photos
  • Photo News
  • Darkroom
amn_NK.png amn_DR.png amn_LK.png amn_LE.png
  • bt_fb_on_2022.svgbt_fb_over_2022.svg
  • bt_twitter_on_2022.svgbt_twitter_over_2022.svg
  • bt_youtube_on_2022.svgbt_youtube_over_2022.svg
  • bt_instagram_on_2022.svgbt_instagram_over_2022.svg
  • Login
  • Register
  • Login
  • Register
  • The Korea Times
  • search
  • all menu
  • Login
  • Subscribe
  • Photos
  • Video
  • World
  • Sports
  • Opinion
  • Entertainment & Art
  • Lifestyle
  • Finance
  • Business
  • National
  • North Korea
  • 1

    INTERVIEWAhn Hyo-seop wanted to share dedicated love with 'A Time Called You'

  • 3

    SHINee launches first Japan tour in 5 years

  • 5

    S. Korea wins 1st table tennis gold in 21 yrs

  • 7

    Heavy traffic jams mostly eased on 5th day of holiday

  • 9

    Public transit fares to increase in Seoul and Busan this week

  • 11

    Samsung chief visits Middle East to explore new businesses

  • 13

    Korea picks up 2 medals in table tennis as gold drought continues

  • 15

    Ruling party vows to investigate China's alleged influence operations

  • 17

    Shin-Hanul No. 2 nuclear reactor begins testing for full operation next year

  • 19

    4 injured in rockfall at tourist attraction on eastern island of Ulleung

  • 2

    Korea's Coast Guard apprehends 22 Chinese after illegal entry attempt

  • 4

    Distraught roller skater apologizes for costly premature celebration

  • 6

    Korea makes last-ditch bid to host World Expo 2030 in Busan

  • 8

    Consumers to face higher prices for daily necessities after Chuseok

  • 10

    LA-based photographer captures Koreatown unfazed by pandemic

  • 12

    No regrets for roller skaters after taking silver in relay

  • 14

    National Assembly speeds up efforts to outlaw dog meat consumption in Korea

  • 16

    'Dr. Cheon and Lost Talisman' tops Chuseok holiday box office

  • 18

    Internet-only banks outperform legacy lenders in labor productivity

  • 20

    Genesis GV80 Coupe looks to compete with Mercedes-Benz, BMW

Close scrollclosebutton

Close for 24 hours

Open
  • The Korea Times
  • search
  • all menu
  • Login
  • Subscribe
  • Photos
  • Video
  • World
  • Sports
  • Opinion
  • Entertainment & Art
  • Lifestyle
  • Finance
  • Business
  • National
  • North Korea
Opinion
  • Editorial
  • Columns
  • Thoughts of the Times
  • Cartoon
  • Today in History
  • Blogs
  • Tribune Service
  • Blondie & Garfield
  • Letter to the Editor
Wed, October 4, 2023 | 18:19
Times Forum
Base rate policy dilemma persists
Posted : 2018-10-22 17:39
Updated : 2018-10-22 17:39
Print PreviewPrint Preview
Font Size UpFont Size Up
Font Size DownFont Size Down
  • facebook
  • twitter
  • kakaolink
  • whatsapp
  • reddit
  • mailto
  • link

By Dr. Jeffrey I. Kim

On Oct. 18, the Bank of Korea (BOK) decided to keep its benchmark interest rate unchanged at 1.5 percent. Governor Lee Ju-yeol said the monetary policy board froze the base rate in order to support economic growth. He added the central bank needs to focus on financial stability until the next board meeting.

Prior to its announcement of the rate freeze, there was strong speculation of a rate hike among the key members of the National Assembly and some economists. They were afraid the widening gap between the U.S. federal funds rate and Korea's base rate would cause massive capital outflows.

By contrast, other people were afraid a rate hike this time would critically raise the households' debt burden and at the same time it would jeopardize GDP growth and employment.

The BOK revised down the nation's growth projection for 2018 from 2.9 percent to 2.7 percent. It also cut the figure for 2019 from 2.8 percent to 2.7 percent.

The lower growth forecast has put the central bank and the government in dilemma.

The interest rate policy dilemma is commonplace in many other countries because interest rate policy results in both positive and negative economic effects.

If the central bank raises its interest rate, this could ease inflationary pressure, while discouraging domestic investment and helping to keep housing prices stable.

Compared to Korea, the U.S. interest rate policy brings about more issues and problems economically as well as politically. At the moment, independence of the U.S. central bank is put to the test.

The Fed chairman, Jerome Powell, has been under a politically difficult situation. He was appointed by President Donald Trump. Yet he had to turn down Trump's request not to raise the Fed's benchmark rate more than twice. That must have made Trump mad.

In spite of the president's plea, the Federal Open Market Committee (FOMC) raised its base rate by 25 basis points from the target range of 1.75-2.00 percent Sept. 28. Then on Oct. 1, the New York stock market crashed.

Trump got angry and rebuked the Fed chair, by shouting, "The Fed has gone crazy!" At an interview with a TV station, Trump called the Fed raising base rates his biggest threat.

Trump said in an interview with CNBC that he was not happy with the Fed's decision to raise interest rates thrice so far this year. Trump must have been deeply concerned about the weakening competitiveness of U.S. manufacturing on the global markets. He was shocked when he witnessed the stock prices plunging drastically.

On the other hand, Powell defends himself by pointing out the fact that GDP growth is strong, labor market is strong and inflation is near the 2 percent target.

The U.S. unemployment rate has been falling from 3.9 percent in July to 3.8 percent in August and further down to 3.7 percent in September. With this economic performance, Powell strongly believes the Fed's gradual rate-hike policy is well justified.

As we observe the two parties, President Trump and Fed Chair Powell exchanging criticisms with each other, we feel that both may be right.

Powell was confident with the performance of the U.S. macro-economy whereas Trump was concerned about continual weakening of U.S. industries, including the manufacturing sector.

Within a month or so, Korean people will have a hot debate again over whether the BOK should raise or lower the base rate or keep the rate at the same level. Their decision will depend on the economic and political conditions in November.

The mandate of the BOK is to ensure financial and price stability. In addition, the central bank needs to prevent the bubbles of housing prices and massive capital outflows.

Prof. John Taylor of Stanford University, the inventor of the Taylor Rule, argued recently that interest rate policy alone cannot achieve all these objectives.

The central banks of non-reserve-currency countries should also closely watch the movement of financial liquidity which directly affects the transactions of real estate and other assets.

Policymakers should focus on the statistical data showing the economic performances, industrial competitiveness and business activities.


Dr. Jeffrey I. Kim (ickim@skku.ac.kr), former foreign investment ombudsman, is a professor emeritus at Sungkyunkwan University. He earned a Ph.D. in economics at the University of Chicago and taught at the University of Colorado, Boulder, and the American University, Washington, D.C.


 
wooribank
LG
Top 10 Stories
1Public transit fares to increase in Seoul and Busan this week Public transit fares to increase in Seoul and Busan this week
2Ruling party vows to investigate China's alleged influence operations Ruling party vows to investigate China's alleged influence operations
3Genesis GV80 Coupe looks to compete with Mercedes-Benz, BMW Genesis GV80 Coupe looks to compete with Mercedes-Benz, BMW
4Korean steelmakers on alert over initiation of EU carbon border tariff Korean steelmakers on alert over initiation of EU carbon border tariff
530 out of 74 major financial companies lack female board member 30 out of 74 major financial companies lack female board member
6Korean shipbuilders seek lead over Chinese rivals in selling LNG carriers to Qatar Korean shipbuilders seek lead over Chinese rivals in selling LNG carriers to Qatar
7Hyundai, Kia to extend earnings rally on strengthening dollar, solid sales Hyundai, Kia to extend earnings rally on strengthening dollar, solid sales
8Lawmakers want chairmen of financial firms held accountable over misconduct Lawmakers want chairmen of financial firms held accountable over misconduct
9Dong-A Socio Group’s honorary chairman passes away at 96Dong-A Socio Group’s honorary chairman passes away at 96
10Returning home from Chuseok holiday Returning home from Chuseok holiday
Top 5 Entertainment News
1TREASURE takes flak for excluding Dokdo from its Japan tour map TREASURE takes flak for excluding Dokdo from its Japan tour map
2Two artists' windows to light and serenity Two artists' windows to light and serenity
3Crime thriller, romance series set to roll out in October Crime thriller, romance series set to roll out in October
4Korean literature featured as animation works at Incheon Airport Korean literature featured as animation works at Incheon Airport
5[INTERVIEW] Ahn Hyo-seop wanted to share dedicated love with 'A Time Called You' INTERVIEWAhn Hyo-seop wanted to share dedicated love with 'A Time Called You'
DARKROOM
  • Turkey-Syria earthquake

    Turkey-Syria earthquake

  • Nepal plane crash

    Nepal plane crash

  • Brazil capital uprising

    Brazil capital uprising

  • Happy New Year 2023

    Happy New Year 2023

  • World Cup 2022 Final - Argentina vs France

    World Cup 2022 Final - Argentina vs France

CEO & Publisher : Oh Young-jin
Digital News Email : webmaster@koreatimes.co.kr
Tel : 02-724-2114
Online newspaper registration No : 서울,아52844
Date of registration : 2020.02.05
Masthead : The Korea Times
Copyright © koreatimes.co.kr. All rights reserved.
  • About Us
  • Introduction
  • History
  • Contact Us
  • Products & Services
  • Subscribe
  • E-paper
  • RSS Service
  • Content Sales
  • Site Map
  • Policy
  • Code of Ethics
  • Ombudsman
  • Privacy Statement
  • Terms of Service
  • Copyright Policy
  • Family Site
  • Hankook Ilbo
  • Dongwha Group