Bank of Korea on guard against 'quantitative easing'

By Park Sae-jin Posted : April 29, 2016, 14:47 Updated : April 29, 2016, 14:47

Bank of Korea governor Lee Ju-yeol. [Yonhap News Photo]


South Korea's central bank was on guard Friday against a fiscal stimulus package called "quantitative easing", saying a shift in its policy requires "a national consensus".

Bank of Korea (BOK) deputy governor Yoon Myun-shik said the central bank should not be used for stopgap measures to issue banknotes freely or purchase bonds from state-run banks for corporate restructuring.

There has been a debate in South Korea over whether to come up with its own version of quantitative easing to revitalize the economy, spur consumption and accelerate the restructuring of ailing companies.

Yoon, however, cautioned that injecting more capital into state policy lenders to support corporate restructuring should be done with fiscal policies. "I believe (it) requires a national or social consensus," he said, adding the central bank should stick to its basic role and carry out its duty within the framework of the law.

On Thursday, President Park Geun-hye called for the adoption of "quantitative easing" in a selective way to minimize a negative impact on financial markets.

"Instead of reckless quantitive easing adopted by advanced countries like the United states, Japan, and the EU, we have to positively consider it in a selective way so that money can go where necessary," Park said, adding state-run banks should lead corporate restructuring after their capital was expanded.

It was seen as a message supporting the idea of allowing the central bank to purchase bonds issued by state-run policy lenders like the Korea Development Bank which have been exposed heavily to bad loans held by shipbuilders and other ailing companies, which are under pressure to reduce debt.

For massive debt restructuring, state-run banks are required to increase capital buffers because their BIS capital adequacy ratios have declined on increasing exposure to bad debt. But printing extra banknotes to provide more capital to them means that taxpayers should bear a greater financial burden. It also needs a revised law banning the central bank from purchasing securities from state lenders.

Park's Saenuri Party has suggested that South Korea should follow the footsteps of Japan and other countries which have tried to revive their economy by lowering the value of their currencies or through a fiscal stimulus package.

BOK Governor Lee Ju-yeol has said the central bank's current monetary policy was already sufficiently supportive of the economy, ruling out more aggressive monetary easing. Lee said there is nothing much to do only with a rate cut at a time of lingering market uncertainties, calling for structure reforms together with fiscal and monetary policies to overcome difficulties.

Aju News Lim Chang-won = cwlim34@ajunews.com
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