The central bank, which is in charge of the interest rate, has made no formal response to the remarks yet. But the BOK Union on Wednesday issued a statement urging the government to "stop interfering with monetary policy." The BOK said the union's statement doesn't reflect the bank's official position, but many observers believe that the bank will raise its voice soon.

Vice Minister Choi raised the topic after attending a government meeting on the economic and financial situation on Wednesday. When the difference between the interest rates of Korea and the U.S. widens, Choi said, foreign capital pours into Korea, and when the difference narrows, foreign money is quickly withdrawn. This can cause market instability, he said. He indirectly urged the BOK to lower the interest rate, which he called "abnormally" higher than the U.S. rate by 2.75 percentage points. Korea's key interest rate currently stands at 5 percent; that of the U.S. is 2.25 percent.

Choi's remarks echoed a speech by Minister Kang at a lecture on Tuesday. In the lecture, Kang said, "The difference between the Korean and U.S. benchmark interest rates has widened to 2.75 percentage points. We shouldn't forget that too much is as bad as too little, as the old saying goes."

His meaning was: If the difference between the Korean and U.S. rates is too wide, foreign capital will rush into Korea to take advantage of the higher rate. That will cause the won to strengthen, which will harm exports. The current account deficit will then widen, leading to a recession. Kang has also pressured the BOK by suggesting that freezing the interest rate is not an effective way to curb soaring consumer prices.

While holding their tongues, BOK officials appeared uneasy about the snowballing situation. A senior BOK official was reluctant to speak about it. "I have nothing to say. If we say something, it will only add to the noise in the market."

Most BOK employees tried not to say anything aloud about the ministry officials' remarks, but some bank officials are quietly raising their voices to deny the government's logic. Many BOK officials argue that lowering the interest rate to stimulate the economy will trigger many ill effects, including swelling the already large real estate bubble.

A mid-level BOK official said, "The government has released a list of about 50 items whose prices it will keep under tight control. This kind of policy is reminiscent of the 1970s when the country was managed under a strict planned economy system. It will have many ill effects. The government shouldn't forget that if the interest rate is lowered, more serious problems might arise."

Another BOK official argued against the Finance Ministry officials' remarks. "The Finance Ministry has raised the issue of the interest rate difference between Korea and the U.S. I don't think foreign capital will pour into Korea, because Korea is a relatively high (investment) risk country, as compared with advanced nations."

(englishnews@chosun.com )