Replies to This Discussion | 이 토론에 대한 답글들

Permalink Reply by Geoff Beer on August 17, 2010 at 12:21pm

Hi Robert,

I am not an economist, but my take is Kim Choong Soo is trying to be a good policy maker by balancing the tenuous scenario of domestic inflation coupled with international deflation. Unlike our Federal Reserve Chairman here in the U.S. who is expert in the delicate nuances of transmitting economic forecasts to the financial community, Mr. Kim may have been a little too transparent for his own good. Also, reading between the lines a bit, I would venture to guess that Mr. Kim would also like our Fed Chief to stop flooding the world’s largest economy with effectively 0% cash. Although this is helping to keep the U.S. banking system afloat, it is not translating to cheap and abundant credit for consumers and small businesses that buy Korean exports.

All things considered, I would say Mr. Kim is more wary of a domestic slowdown than he is about domestic inflation, otherwise he would have raised the benchmark interest rate from 2.25% to 2.50%.

Best regards,

Geoff Beer

• ▶ Reply

Permalink Reply by Robert Eberenz on August 17, 2010 at 4:39pm

Hi Geoff,

I'm no PhD Econ guy either, but my gut speaks to me in much the same way as you on this issue. I do however give Kim Choong Soo enough credit to expect that his remarks are well calculated and scripted to portray Korean Monetary policy in a specific light.

That said, I will agree that his comments that alluded a need for tighter monetary policy and higher rates were mis-timed, given the recent decision to keep the rate at 2.25%. I would venture to guess that Mr. Kim's strategy includes raising rates continually but at a slow enough rate to keep the appreciation of the Won below the faster growing economies in Asia. His comments may trigger some uncertainty in the short term, as traders look to manage the interest rate risks in their portfolios, but they outline a strategy to raise rates well into the future.

The U.S. has indeed hit a wall with our own policy and I believe Mr. Bernanke, of our own central bank, is wishing that he had the task of cooling a recovery ahead of him now (like Mr. Kim) rather than re-stimulating a stagnating one. Now the United States Fed looks foolish for jumping the gun and tightening policy before a recovery had taken hold, only to re-establish quantitative easing measures in support of the fading economic data from the U.S.

The issue in the U.S. has never been interest rates, but they'll keep trying to play the game of stimulation by quantitative easing. In Korea interest rates are very low as well, as domestic consumption still lags export growth. Perhaps we'll see a reversal in the recent shift to "quantitative tightening" in the Asian Tigers if we see continued slowing in China, but that story might never make the tickers if it's on the heels of receding stock markets in the West.

Anyone else care to weigh in? Was Kim's comment a mistake or on purpose? Was it beneficial or detrimental to his cause?

• ▶ Reply