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Exclusive-Bank of Korea considering forward guidance overhaul, sources say By Reuters

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By Cynthia Kim

SEOUL (Reuters) – The Bank of Korea is considering overhauling how it provides guidance on the likely future path of interest rates by extending the timeframe and giving visual estimates in a bid to boost transparency, said four sources familiar with the issue.

The proposal, however, faces opposition from at least one of the central bank’s seven-member governing board and a senior official, they said, amid concerns telegraphing future policy could undermine public confidence in policy, particularly if conditions suddenly change.

Since first flagging the idea during a speech at the Federal Reserve’s Jackson Hole symposium in 2022, Governor Rhee Chang-yong has been developing plans to regularly map out conditional forward guidance on policy interest rates for six months or longer.

Those projections would be accompanied by more detailed growth and inflation forecasts, according to sources familiar with the discussions.

The move would represent a major change to how the bank produces and communicates policy and be part of a wider push to improve transparency and boost public understanding of its actions.

Any visual estimates on the likely course of monetary policy would the first by the BOK, which currently issues mostly verbal forward guidance.

South Korean authorities have been trying to introduce reforms across financial markets as the export powerhouse attempts to improve governance, transparency and communication.

“One of the many formats under review is charting the future interest rate path, as the point is to give quantitative forward guidance,” said one of the sources, on condition of anonymity due to the sensitivity of the matter.

Asked if it could be similar to the Fed’s “dot plot,” the de facto monetary policy forecast of the U.S. central bank, a second source said it was too soon to tell but that the new format “should aim to be straightforward, to leave little room for interpretation.”

A BOK spokesperson declined to comment when asked if a new format of forward guidance was being discussed.

Any overhaul of the bank’s communication tool would need to be approved by the seven-member board, according to the BOK.

Analysts expect the BOK to cut its key interest rate by 50 basis points by the end of this year from 3.50% currently as inflation slows to the mid-2% range.

The BOK’s current approach to forward guidance is on a meeting-by-meeting basis, which means central bank watchers mostly scan monetary policy statements for key…

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