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South Korea Favors Tougher Lending Supervision

South Korea's finance minister said on Thursday he preferred strengthening supervision of bank lending to directly controlling money supply as a means to cool hefty money supply growth, an online news provider reported.

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CNBC.com
Korea, Korean Flag

"There is growing concern about excessive money liquidity in the financial system, but it doesn't appear desirable (for authorities) to control certain ceilings," EDaily quoted Finance Minister Kang Man-soo as saying.

"(The authorities) may consider strengthening the soundness of lending," he was quoted as saying during his scheduled meeting with heads of the country's major business lobby groups and industry organizations.

South Korea's central bank in 1999 switched its main monetary policy tool to setting the benchmark interest rate each month from the previous method of controlling the money supply.

Kang's remarks follow a local newspaper report that the central bank may raise the cash reserve requirement ratio to cool hefty domestic money growth. The report pounded local bond markets on Monday, despite official denial.

Central bank data showed early this month the country's broadest L measure of money supply grew 14.6 percent in April from a year earlier, the fastest since November 2002.

In theory, ample cash liquidity in circulation in the financial system could push up inflation in the future.

Meanwhile, the Bank of Korea's monetary policy committee held a scheduled meeting on Thursday, the second of the two it holds each month, but did not discuss whether to raise the reserve requirements, spokesman Min Sung-kee said.

The seven-member committee sets interest rates at the first monthly meeting and discusses other issues at the second.

The Bank of Korea switched its main monetary policy tool into setting interest rates under an inflation target in 1999 from the previous method of controlling money supply growth.