Roundup: U.S. Fed official advises S.Korea not to use QE for corporate restructuring

St. Louis Federal Reserve President James Bullard on Monday advised South Korea's central bank not to use quantitative easing (QE) for the government-led corporate restructuring in shipping and shipbuilding industries.

Seoul has pushed, since April, for the restructuring of zombie companies in shipping and shipbuilding sectors, which had struggled to pay even interests amid the continued losses and falling orders.

The ruling Saenuri Party proposed the so-called Korea-version QE to help finance state-run banks exposed to tremendous loans to these industries.

The proposal involved the revision of a relevant law to allow the Bank of Korea (BOK) to purchase bonds or stocks issued by the state-run Korea Development Bank (KDB), which in turn, will provide the funds to troubled companies.

President Park Geun-hye also mentioned the need for a selective QE, but concerns emerged about an abuse of the central bank's money-printing that can lead to unexpected side effects. Corporate restructuring is traditionally financed by fiscal coffers.

"I'll give you my own view if this kind of issue came up in the U.S.," Bullard, who is in Seoul to attend the BOK's annual conference, told a press conference.

"The Fed would not be involved in restructuring of these industries, because I think it interferes with central bank independence on the grounds that there have been perhaps ill-advised loans made in the past," he said.

Bullard noted that monetary policy should be pursued for the economy as a whole, not for specific industries.

Asked about whether potential U.S. interest rate hike would fuel capital outflow from emerging markets, Bullard said that global markets seemed to be well-prepared for possible rate hike in the United States.

"My sense is that markets are well-prepared for possible rate increase globally and that this is not too surprising given our lift-off in December and the policy of the committee which has been trying to normalize rates slowly and gradually over time," said Bullard.

"My ideal is that if all goes well, that will come out very smoothly and won't get too much of reaction in global financial markets," he said.

His comments came amid rising expectations that the Fed may hike rates as early as in June in consideration of improved U.S. economic indicators. The latest U.S. rate hike came in December last year, the first tightening in nearly a decade.

Fed Chair Janet Yellen said on Friday that a rate hike in the United States in coming months would be appropriate, boosting the Fed's rate hike expectations.

U.S. first-quarter GDP growth was revised up to an annualized rate of 0.8 percent from an earlier estimate of 0.5 percent, indicating the U.S. growth not as weak as initially estimated.

Bullard said the first-quarter GDP number was "mildly encouraging" as it was not as weak as where the Fed had before, noting that a rebound would seem to be materializing in the second quarter. Enditem