South Korea reshuffles central bank board, may shed light on government's focus on stability risks

[SEOUL] South Korea announced a major reshuffle in the Bank of Korea's policy board on Thursday, amid market speculation over whether it will dive deeper into unconventional policy to reduce the economic fallout from the coronavirus pandemic.

The changes to the seven-member board, which had been widely expected, also may offer clues on President Moon Jae In's focus on ensuring financial market stability, and on tackling runaway property prices in Seoul once the economic crisis is over.

The BOK slashed interest rates to a record low on March 16 and signaled strong appetite in April for further cuts as well as unconventional policy to stabilise the economy.

The new appointments could tip the balance on the board to a more neutral-hawkish stance in the long run, analysts said. It is currently divided between so-called doves who believe the economy needs more stimulus to fight the pandemic, and hawks who say the country must step up a more targeted approach to help those hit by the virus, and eventually rid its addiction to loose-money policies.

Cho Yoon Je, a former ambassador to the United States, former deputy governor of the bank Suh Young Kyung and Joo Sang Yong, a Konkuk University professor, were nominated to join the policy-setting committee. Mr Joo's name was put forward by the Financial Services Commission.

Incumbent Koh Seung Beom, seen largely as neutral, was nominated by the BOK to serve for an extended period.

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The new members will replace policy doves Cho Dong Chul and Shin In Seok, and Lee Il Houng, who has been the committee's most hawkish member. Their terms expire on April 20.

The BOK is undergoing its biggest leadership shakeup in decades, as terms for five of the bank's seven board members are set to expire this year. Senior deputy governor Yoon Myun Shik, a voting board member who finishes his term in August, will also be replaced.

The three other board members - Governor Lee Ju Yeol, his No.2 Yoon Myun Shik and Lim Ji Won - are known for their tendency to put an emphasis on financial market stability.

"The new members are likely to add support for Moon's policies" focusing on boosting household income and property curbs, said Yoon Yeo Sam, a fixed-income strategist at Meritz Securities.

Mr Yoon noted Mr Joo has called in the past for more property market regulations, while supporting Mr Moon's policy on boosting household income to stimulate demand.

Taming the property market is critical for Mr Moon, who pledged an "endless" stream of measures until prices cool in some neighbourhoods. Apartment prices in Seoul have surged by 50 per cent since he took office.

Mr Moon's ruling party won an absolute majority in parliamentary elections, results on Thursday showed, which will help him to press ahead with his agenda in his final two years in office, including looser fiscal policies aimed at creating jobs, property market curbs, and a higher minimum wage.

At a economic forum in 2017, Mr Joo reportedly said boosting income for the vulnerable and curbing home prices should be vital parts of economic policies, especially because "property price surges can lead to a decrease in consumption as those without homes will increase savings."

Even so, the reshuffle may not bring any meaningful changes to monetary policies for this year, as the BOK is set to maintain its looser and unorthodox monetary policies until the impact from the pandemic eases off, says Kong Dong Rak, fixed-income strategist at Daishin Securities.

If appointed by Mr Moon, as they are likely to be, the incoming members will have terms of three and four years, staggered to ensure that the bank will not have a majority of its members retiring at the same time.

While the BOK's independence to set monetary policy is guaranteed by law, the government has a long track record of pressuring the central bank to cooperate on policy direction.

REUTERS