S. Korea must consider 'preemptive' measures for short-term liquidity: KDI

SEOUL, Sept. 17 (Yonhap) -- South Korea must consider "preemptive" measures aimed
at adjusting the amount of liquidity unleashed to stimulate the slumping economy
as part of efforts to stave off a possible overheating of the nation's asset
market, a state-run think tank said Thursday.

The recommendation by the Korea Development Institute (KDI) comes amid growing
debate over when and how to roll back stimulus measures undertaken by the
government and the central bank to ease the nation's steep economic downturn.
"Thanks to aggressive monetary policies, short-term liquidity in the market grew
at a fast pace," KDI said in a report. "Still, it is not serious enough to cause
overheating in the asset market or call for an immediate shift in the nation's
monetary policy stance."
"Nevertheless, it is necessary to take precautions against increasing short-term
liquidity that could lead to a spike in asset prices in the future, given our
past experiences with bubbles and the repercussions they can cause," it added.
The Bank of Korea recently kept its key interest rate unchanged for a seventh
month at a record low of 2 percent but hinted it would conduct a rate hike if
housing prices continue their upward trend.
The government, meanwhile, insists it will stick to its expansionary economic
policy for the time being until the private sector is capable of maintaining
growth on its own without support. Finance Minister Yoon Jeung-hyun also said
that it is premature to raise the nation's key interest rate.
KDI, however, said that the current expansionary monetary policy stance will
cause "unnecessary" side effects if it remains in place for a period of time
beyond its short-term role in helping the economy weather the crisis.
"Therefore, in order to stave off an overheating in the asset market in the
process of an economic rebound, the government needs to ease uncertainties in the
financial market, thus turning short-term capital into longer-term assets ...
while considering preemptive liquidity-adjustment measures," it said.
kokobj@yna.co.kr
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