Kim Jin-il, the newly appointed member of the Bank of Korea's Monetary Policy Board, on Wednesday signaled the need to keep the base rate slightly above the neutral level, saying "interest rates should be a bit higher to prevent major financial accidents." Market observers said he openly displayed a hawkish stance favoring monetary tightening from his first day in office.
Kim visited the Bank of Korea's press room after his inauguration ceremony and said, "To prevent a major financial crisis, I think it would be better to raise interest rates by half a click and accept some sacrifice on the other side."
He described the approach as "a kind of insurance," explaining, "Insurance exists in the first place because someone gets into accidents and someone gets sick." His comments suggest the need to maintain somewhat higher rates to prevent the buildup of financial imbalances, even at the cost of some economic slowdown.
In particular, Kim disclosed his view on the appropriate base rate level, saying, "My thinking is that it would be about 0.1 to 0.2 percentage points above the average or the median." He effectively made public his preference for a rate level somewhat higher than the average among Monetary Policy Board members.
Explaining the background to this view, Kim said, "It is because of my experience working at the U.S. Federal Reserve during the 2008 financial crisis," adding, "It could be a good experience, or it could be a trauma."
Regarding the recent surge in the won-dollar exchange rate, Kim said, "We cannot know what level of the exchange rate is appropriate," while adding, "Everyone seems to acknowledge that volatility management is necessary."
