Bloomberg News

Advanced Nations Should Skip Quantitative Easing, Kim Says

May 16, 2012

South Korea’s central bank governor urged developed nations to resist another round of quantitative easing even as a slide in global stocks underscored the concern that Greece may exit the euro, causing turmoil in markets.

“Additional quantitative easing will have more of an adverse effect than a positive effect,” Bank of Korea Governor Kim Choong Soo said in a speech prepared for a lecture at Hallym University, Chunchon, north of Seoul. “If liquidity remains ample for too long, it could lead to speculative activities.”

Asian stocks fell for a sixth day today and commodities dropped as talks to form a new Greek government failed. The U.S. Federal Reserve is likely to start a third round of stimulus in June, Goldman Sachs Group Inc.’s commodity research team, led by Jeffrey Currie in New York, wrote in a report May 9.

The MSCI Asia Pacific Index slid almost 3 percent at 2:48 p.m. in Tokyo, while Hong Kong’s Hang Seng Index (HSI) slumped by the most in six months and Standard & Poor’s 500 Index futures declined 0.2 percent. South Korea’s Kospi fell 3 percent and the won weakened 0.9 percent to 1163.95 per dollar.

Emergency Meeting

South Korean officials from the finance ministry, the central bank and financial regulators will hold an emergency meeting at 7:30 a.m. tomorrow in Seoul to discuss the European debt crisis and financial markets, according to a text message from the Finance Ministry.

The U.S. central bank bought $2.3 trillion of bonds in two rounds of so-called quantitative easing, or QE, from December 2008 to June 2011. The Fed is also replacing $400 billion of short-term Treasuries in its holdings with longer-term debt to keep borrowing costs down, under a program scheduled to end next month.

Meanwhile, South Korea’s export-dependent economy is recovering very slowly as most advanced countries are still struggling following the global financial crisis, Kim said. Gross domestic product expanded at the fastest pace in a year last quarter, mostly boosted by government spending and investments by semiconductor chipmakers.

To contact the reporter on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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