Mon, Sep 17, 2012 - Page 15 News List

Bank of Korea warns about QE3’s ‘negative spillover’

Bloomberg

South Korea must control volatile capital flows as quantitative easing measures taken in the US and Europe have a “negative spillover” into emerging countries, Bank of Korea Governor Kim Choong-soo said.

“It seems current safeguards against volatile capital flows are working to some extent,” Kim told reporters in Incheon, west of Seoul, on Friday. The comments were embargoed for release yesterday.

The US Federal Reserve on Thursday announced a third round of quantitative easing as it seeks to boost growth and reduce unemployment. The measures may spark a new round of protectionism in Latin America, Banco Bilbao Vizcaya Argentaria SA said in a research note om Friday.

Europe’s problems need a global solution with more active participation from emerging economies, Kim said. Emerging countries need to boost domestic demand to spur growth and help support the global economy, he added.

The Fed said it would buy US$40 billion worth of mortgage-backed securities per month to stimulate the US economy.

However, Richmond Federal Reserve president Jeffrey Lacker was the lone dissenter to the Federal Open Market Committee’s decision to do a third round of quantitative easing. He has dissented from every committee decision this year.

Lacker said that he opposed the move because allocating credit should be the province of fiscal authorities such as the US Treasury Department or the US Congress.

“I strongly opposed purchasing additional agency mortgage-backed securities,” Lacker said in a statement released on Saturday by the Richmond Fed. “Such purchases, as compared to purchases of an equivalent amount of US Treasury securities, distort investment allocations and raise interest rates for other borrowers.”

Lacker said that “channeling the flow of credit to particular economic sectors is an inappropriate role for the Federal Reserve.”

Lacker, 56, has been president of his regional bank since 2004. He was previously the Richmond Fed’s director of research.

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