|
BOK settles on 2-4% as manufacturers’ confidence dips
November 27, 2009
|
|
| The Bank of Korea will widen its inflation target to between 2 and 4 percent from the current range of 2.5 to 3.5 percent, it announced yesterday. Though the bank only cited increasing volatility in prices, some economists suspect it was a move to gain some wiggle room for its monetary policy. The central bank said in a statement yesterday that its monetary policy committee decided after consultations with the government to set the inflation target for the 2010-2012 period at 3 percent, with a margin of plus or minus 1 percentage point. “Between 2010 and 2012, uncertainties in prices will likely increase,” the BOK said in its statement. It pointed out that volatility increased in the 2007-2009 period from 2004 to 2007, due to fluctuations in the prices of crude oil and other raw materials. The central bank emphasized that the midpoint of the target range will remain the same at 3 percent, adding that the wider range does not mean a change in its policy stance. Still, the attention of market observers is focused on the fact that the upper bound of the BOK’s inflation target will be raised to 4 percent from 3.5 percent. Nomura Securities Co. said in a report yesterday that 4 percent is “not stringent enough” and will increase “the risk of monetary policy being kept too loose,” by making it more difficult for the BOK to justify an early increase in the key rate. “Along with political factors - BOK Governor Lee [Seong-tae]’s term ends in March, which may reduce his leadership role on the monetary policy committee; local elections in June may provide the government with an incentive to maintain accommodative policy longer than the BOK might deem warranted - an inflation target with a higher upper bound could add to risks that the BOK moves too late,” Kwon Young-sun, a Hong-Kong-based economist at Nomura, wrote. The BOK’s move came as some other economists argue it is too early to take an exit strategy and as improvements in business confidence were curbed. The Samsung Economic Research Institute, a leading private think tank, warned in a report yesterday, “With weak domestic demand, we cannot rule out the possibility that the domestic economy will sink again, unless the global economy recovers. That means that the economy does not yet have enough life to bear an exit strategy.” Still, the think tank upgraded its forecast for the nation’s economic growth to 0.2 percent this year and 4.3 percent next year from its former estimates of minus 0.8 percent and 3.9 percent, respectively. The BOK said in a separate report yesterday that local manufacturers’ sentiment deteriorated for the first time in nine months, mainly due to sluggish domestic demand and general uncertainties in the economy. The business survey index, which measures manufacturers’ feelings about current conditions, stood at 89 this month, down from October’s 92, which was the highest in over six years. A figure below 100 means that a majority of the 1,475 manufacturers polled had negative opinions. By Moon So-young [symoon@joongang.co.kr] |
|
