Surprise second term for South Korea central bank chief seen promoting continuity

SEOUL (Reuters) - South Korea’s government surprised the market on Friday by reappointing central bank chief Lee Ju-yeol for another term, a move that economists said should reinforce plans to gradually tighten monetary policy.

FILE PHOTO - Bank of Korea Governor Lee Ju-yeol speaks during a news conference in Seoul, South Korea, November 30, 2017. REUTERS/Kim Hong-Ji

The decision to give the 65-year-old Lee another four years atop Bank of Korea was unexpected, as it’s the first time since that 1970s that an incumbent governor has been given a second term.

“Tradition was broken today,” Kwon Young-sun, an economist at Nomura Securities said.

“With elevated global financial market turmoil, growing U.S. trade protectionism and geopolitical tensions on the Korean peninsula, the president choose continuity over tradition,” he said.

The current term of Lee, who’s been at the central bank for 39 years, ends on March 31.

Lee faces a parliamentary confirmation hearing, though this largely a formality as lawmakers lack the power to block the nomination if President Moon Jae-in presses ahead with formal appointment.

Analysts said the nomination reduces the political risk of any drastic changes in monetary policy, and should enhance the BOK’s independence.

Kim Doo-un, an economist at Hana Financial Investment, said the selection guarantees policy continuity, and reinforced a consensus that tightening will be gradual this year as export growth moderates after 2017’s rapid expansion.

In November, the BOK raised the base rate KROCRT=ECI by 25 basis points. Lee's challenge is to further tighten policies without weakening consumption or business sentiment already hurt by trade friction with the United States.

South Korean businesses were spooked after Trump on Thursday said the U.S. would impose hefty tariffs on imported steel and aluminum.

“Under such difficult conditions, I don’t think the government could find a more experienced, savvy veteran than Lee to guide interest rates higher,” Kim said.

Lee was part of the senior team guiding the BOK’s response to the 2008-9 financial crisis. He has attended rate decision meetings of the Monetary Policy Board for 13 years, making him an expert in monetary policy.

“Lee has been communicating well with the markets, and he is a true veteran of monetary policy,” said Stephen Lee, an economist at Meritz Securities. “The bank’s policy plans will remain intact.”

Domestic financial markets were closed for the day when the announcement of Lee’s reappointment was made.

Additional reporting by Christine Kim; Editing by Shri Navaratnam and Richard Borsuk