FX.co ★ Bank of Korea Plans Dot Plot to Enhance Policy Transparency

The Bank of Korea is set to expand its forward guidance by implementing a dot plot system for future interest rate projections, as announced by Governor Rhee Chang-yong on Thursday. Traditionally, after each policy review, Rhee has conveyed the conditional views of the six board members regarding the prospective interest rate trends for the upcoming three months through verbal communication. However, he mentioned in his address at the IMF’s Camdessus Central Banking Lecture that the Bank of Korea is presently conducting pilot tests on this forward guidance approach. During these trials, six members of the Monetary Policy Board, excluding the Governor himself, denote their perspectives on the interest rate trajectory for the following year with dots, although these results are currently kept confidential. The approach allows board members to plot two to three dots per horizon to express probabilistic views. If implemented, this would signify a significant transformation in the bank's communication strategy, with the goal of enhancing transparency and facilitating public comprehension. Rhee further stated that this initiative is anticipated to evolve into "an effective channel for monetary policy communication."