(LEAD) BOK head says revised bill to boost its response capability

(ATTN: UPDATES with more info in last 5 paras)
SEOUL, Sept. 5 (Yonhap) -- The recent parliamentary passage of a bill awarding the Bank of Korea (BOK) a role in coping with financial instability has set the stage for the central bank to tackle problems in a flexible manner, the top central banker said Monday.
The National Assembly on Wednesday approved a bill governing the BOK, allowing the central bank to keep financial stability as its policy priority, together with price stability. The passage paved the way for the BOK to play a role in preventing another financial crisis.
"The passage of the bill means that an environment has been made (for the BOK) to flexibly respond to changing (economic) situations. This is not an issue where one institution takes authority away from another institution," BOK Gov. Kim Choong-soo told reporters.
The amendment has been drifting for nearly two years in the National Assembly amid sharply divided opinions among stakeholders. The Financial Supervisory Service, the country's financial regulator, and local banks have been opposing the revision, claiming that the move will decentralize the watchdog's regulatory rights, thereby increasing burdens on financial firms due to potential frequent inspections.
The passage of the bill will empower the central bank to cope with financial instability and conduct policies to stem financial systemic risks, thus allowing the BOK to play a role in tackling potential financial turmoil.
Meanwhile, the BOK governor said that actions taken by the central bank cannot always be in line with market expectations.
"The central bank needs to have good communication with market players, but it should not always act in tandem with market expectations," Kim said.
Kim said as there are many economic agents like households and companies, it is natural that the BOK's policy decision cannot satisfy all players.
His remarks came as the BOK will hold a monthly rate-setting meeting on Thursday. South Korea's consumer prices jumped a jaw-dropping 5.3 percent in August from a year earlier, which analysts say warrants a rate hike to tame inflation. But dimmer global economic outlooks and heightened economic uncertainty are making more analysts bet on a rate freeze this month.
The BOK froze the key rate at 3.25 percent for the second straight month in August as the first-ever U.S. credit downgrade and the euro zone sovereign strains increased economic uncertainty.