Nothing is more appropriate than the “better late than never” idiom in evaluating the central bank’s latest rate increase.
As the global financial crisis was setting in three years ago, the Bank of Korea slashed its benchmark rate on several occasions ― from 5.25 percent in August in 2008 to a historic low of 2 percent in February 2009. But it took post-crisis action at a snail’s pace, despite warnings against impending inflation.
When recovery was in full swing last year, pressure was mounting on the central bank to take preemptive action against inflationary expectations, which were certain to rise with the market awash with liquidity. But it dawdled until July 2010 when it raised the rate by 25 basis points. It took another four months until it raised the rate again.
It could not delay a rate increase this month, given that the consumer price index had surpassed the middle point of the tolerable range in December. In raising the rate for the third time since the crisis Thursday, the bank’s governor belatedly acknowledged that mopping up excess liquidity would be the key to monetary policy in the future.
Behind the bank’s belated move is President Lee Myung-bak’s growth-first policy. His administration has been promising to attain the goal of expanding gross domestic product 5 percent this year, ignoring lower growth forecasts by renowned think tanks and pressuring the central bank not to raise its benchmark rate.
Now how to contain snowballing inflationary pressure is of great concern to the Lee administration. In its fight against inflation, it is promising to use all weapons in its arsenal ― from tariff cuts to sanctions against price fixing. But what it needs to do is stop meddling in the central bank’s monetary policy and commit itself not to pursue growth at the expense of consumer prices.