'Minority Opinion for Interest Rate Hike' August Monetary Policy Committee Meeting Likely to Be Held with 6 Members Without Go Seung-beom

[Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] As President Moon Jae-in nominates Ko Seung-beom, a member of the Bank of Korea's Monetary Policy Committee, as the new chairman of the Financial Services Commission, attention is also focused on whether the Monetary Policy Committee meeting scheduled for the 26th will be held as planned. Since Commissioner Ko was the sole dissenter at last month's Monetary Policy Committee meeting, suggesting the need for a rate hike, it is an important point to see how this will affect the Bank of Korea's future rate hike schedule and the internal atmosphere of the Monetary Policy Committee.

According to Bank of Korea officials on the 7th, if the Blue House personnel hearing schedule is set, Commissioner Ko is expected to resign immediately, making it unlikely that he will participate in the Monetary Policy Committee meeting scheduled for the 26th. Under the Personnel Hearing Act, the National Assembly must complete the personnel hearing schedule within 20 days from the date the Blue House submits the appointment consent proposal.

Accordingly, the Bank of Korea's Monetary Policy Committee on the 26th is likely to decide the base rate with the remaining six members without Commissioner Ko. There is no major problem in holding this Monetary Policy Committee meeting. The committee requires at least five of the seven members to attend and approve the agenda by majority vote.

However, since there was a possibility of a rate hike at this month's Monetary Policy Committee meeting, the impact of Commissioner Ko's absence is a point of interest. Commissioner Ko was the only member to express a minority opinion advocating a rate increase at last month's meeting. So far, except for Commissioner Joo Sang-young, most members of the Monetary Policy Committee are known to have a hawkish (favoring monetary tightening) stance.

Commissioner Ko, a former bureaucrat, was initially classified as a dove (favoring monetary easing) when he first joined the Monetary Policy Committee. However, in October 2018, he first presented a minority opinion calling for a rate hike along with Commissioner Il-hyung Lee, solidifying his hawkish (favoring monetary tightening) stance. One month after he presented the minority opinion, in November 2018, the Bank of Korea raised the base rate by 0.25 percentage points to 1.75% per annum.

At last month's Monetary Policy Committee meeting, Commissioner Ko emphasized "financial stability" and was the only member to argue that the base rate should be raised from 0.5% to 0.75%. He argued that since the ultra-low interest rate environment continues and people are borrowing to invest in risky assets, it is necessary to respond by raising rates.

According to the minutes of the Monetary Policy Committee meeting held on July 15, during the discussion on the direction of monetary policy, Commissioner Ko emphasized, "Considering financial stability, it is time to adjust the degree of monetary policy easing." He particularly noted, "Despite recent government measures, the increase in household debt continues, and funds continue to flow into asset markets such as real estate, which is concerning," adding, "It is desirable to place more weight on financial stability and raise the base rate from the current 0.50% to 0.75%."

Meanwhile, the Bank of Korea will appoint a new commissioner to replace Commissioner Ko. The term of the newly appointed commissioner will be the same as the predecessor's term (April 2023). Since Governor Lee Ju-yeol recommended Commissioner Ko, the new commissioner will also be appointed by the president after a recommendation from the governor.