SEOUL (Reuters) – A sweeping change of guard at South Korea’s central bank next month may trigger faster policy normalisation as President Moon Jae-in keeps his sights on taming the country’s runaway home prices by stacking the monetary board with hawks.

Asia’s fourth-largest economy must first battle through a downturn from the impact of the coronavirus health crisis with at least one more rate cut, but April’s board overhaul could end the central bank’s rate-cut cycle, analysts say.

Four of the Bank of Korea’s seven board members will retire on April 20 and one is due to leave by August. Replacing the members without upsetting capital flows or the country’s large household debt is one of the biggest policy challenges facing the liberal leader.

It is also the perfect opportunity for him to turn the spotlight on property prices instead of reflating economic growth, current and former officials with knowledge of the process say.

At the top of a list of candidates are two life-long bureaucrats who served as financial regulators whose mandate was to ensure financial stability in the face of alarming growth in mortgaged household debt, according to three of the officials.

Yoo Kwang-yeol, deputy head of the Financial Supervisory Service and Jeong Eun-bo, chief negotiator for defence cost-sharing talks with the United States, are perfect examples of the profile that fits the focus on the housing market, one of the officials told Reuters.

“Both spent a long time at the finance ministry and are possible candidates. They are more hawkish than most at the ministry because they spent years at the regulator, so naturally, their focus is on trimming household debt and stabilising markets,” the official said.

Another official, however, said Jeong could be stuck in his current job unless Seoul’s defence cost talks with Washington end soon.

“ENTIRELY” UP TO MOON

The president receives nominations from industry, finance and regulatory officials but selection will be “entirely” up to Moon, another source with access to the process said.

All of the officials spoke on condition of anonymity.

Senior Deputy Governor Yoon Myun-shik, a voting board member whose term ends in August, will also be replaced.

The incoming members will have terms of three and four years, staggered to ensure a majority don’t retire at the same time.

Lifetime bureaucrats Kim Tae-hyun, secretary general at the Financial Services Commission (FSC), and Cha Young-hwan, vice minister at the Office for Government Policy Coordination, and Sohn Byung-doo, No.2 at the FSC, “have been touted by some of Moon’s economic aides,” another official said.

Yoo, Cha, Sohn and other likely nominees declined comment, while Jeong was not immediately available to comment.

The board positions, with salaries of some $275,000, are coveted by officials looking to survive their top posts after the next presidential election in 2022.

Former economist at the Federal Reserve Board Kim Jin-ill, who warned about depleting policy ammunition, and Kim So-young, a Seoul National University professor who served as a BOK adviser, have been flagged as possible candidates by domestic media.

Jun Sung-in, a Hongik University professor, is the most dovish among names in the line-up.

The current seven-member board is divided between so-called doves who believe the economy needs more stimulus to fight the virus epidemic, and hawks who say the country must rid its addiction to loose-money policies.

While the BOK’s independence to set policy is guaranteed by law, the government has a long record of pressuring the central bank to cooperate on policy direction.

Defying market expectations for more easing, the central bank kept rates steady at 1.25% in a 5-2 vote in February.

Lower bound close for South Korea’s base rate interactive here

EXIT OF THE DOVES

With the economy facing the risk of a first quarter contraction, economists expect rates to be slashed to a new low of 1.00% by the next policy review on April 9, or even earlier.

“One more rate cut is imminent to fight the virus but once that’s done, the new board will be much more wary of further easing as they are closer to the effective lower bound, and because they will be mindful of the government’s drive to cool property prices,” said Yoon Yeo-sam, a fixed-income strategist at Meritz Securities.

The country’s effective lower bound stands at a median 0.75%, just 50 basis points below the current 1.25% rate, according to a Reuters poll of 13 analysts.

    BOK Governor Lee Ju-yeol has said taking rates too low could spark a massive capital outflow or a liquidity trap, sapping the effect looser policy could have in boosting the economy.

But April’s board overhaul could put an end to the central bank’s easing cycle.

Taming the property market is critical for Moon who pledged an “endless” stream of measures until prices cool in some neighbourhoods. Apartment prices in Seoul have surged by 50% since he took office.

Kim Myoung-sil, fixed-income analyst at Shinhan Investment Corp, said the exit of dovish members Cho Dong-chul and Shin In-seok will shift in balance.

“Cho is a peculiar dove. We’re unlikely to see someone that dovish again with the reshuffle, as the government will be mindful of the impact of low rates on the property market.”