[Q&A] Lee Ju-yeol "Additional Interest Rate Cuts Will Be Judiciously Considered, Taking Side Effects Into Account" (Comprehensive)

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] Lee Ju-yeol, Governor of the Bank of Korea, expressed that although there are expectations for an interest rate cut due to the COVID-19 outbreak, careful judgment is necessary considering the side effects.

Governor Lee made these remarks on the 14th after attending the 'Macroeconomic Financial Meeting' with financial authorities including Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, Eun Sung-soo, Chairman of the Financial Services Commission, and Yoon Seok-heon, Chairman of the Financial Supervisory Service. He said, "Operating market liquidity in a relaxed manner is a separate issue from an interest rate cut."

He also added, "I think the economic impact of the COVID-19 situation should be confirmed through indicators," and "There was no discussion about an interest rate cut at today's meeting."

Deputy Prime Minister Hong said, "We can review the economic ripple effects caused by COVID-19 by scenario, but we cannot provide specific figures yet," and "It is not an appropriate stage to discuss in detail what kind of economic response policies are needed."

He also said, "The four institutions shared their current understanding of the COVID-19 ripple effects, and there was no significant difference," and "The financial market initially showed temporary volatility but is relatively stable. However, since volatility could expand at any time, we will monitor with vigilance."

Below is a Q&A with Deputy Prime Minister Hong and Governor Lee.

- How severe will the impact on the real economy be? If economic stimulus is implemented, how can the funding be secured specifically?

▲ First, regarding the economic ripple effects, we can review by scenario, but it is still a situation where we cannot provide specific figures. The Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS) outbreaks are important experiences and evidence. We reviewed based on those today, but it is not yet the stage to talk about a few percent impact. Economic responses and measures will be created based on supervision, but there was not enough time to discuss in detail what is needed, and it is not an appropriate stage. There was no mention of funding.

- Is it possible to achieve this year's growth target of 2.4%?

▲ This is connected to what I mentioned earlier. We need to confirm how much the COVID-19 outbreak will affect foreign tourists and consumption. I think it is not the stage for the government to comment now.

- You mentioned in your opening remarks that market liquidity will be managed with ample flexibility so that companies can smoothly raise funds. Does this imply openness to an interest rate cut?

▲ It is a separate issue from an interest rate cut. I was referring to measures from this perspective, and it was not a statement made with an interest rate cut in mind. There was no discussion about an interest rate cut at today's meeting. (Governor Lee)

- You took preemptive interest rate action during the MERS outbreak. Do you consider the current exchange rate level appropriate?

▲ The situation in 2015 and now is different. At that time, the economy was in a downturn phase, but now it has passed the bottom and is about to recover. I would say the situation is different from then. It is not appropriate for me to comment on what the appropriate exchange rate is. (Governor Lee)

- If not an interest rate cut, what about unconventional monetary policy?

▲ It is not a situation to link an interest rate cut with unconventional monetary policy. To elaborate on the interest rate cut, I understand there is some expectation for a rate cut mainly in the bond market recently, but currently it is difficult to gauge how much the COVID-19 will impact our economy. I think the impact should be confirmed through indicators. Of course, there are some calls for an additional rate cut, but we must carefully consider the side effects along with the effects of a rate cut and make a cautious judgment. We will closely monitor the situation and maintain a cautious stance. That is my view. (Governor Lee)

- With COVID-19 concerns not yet dissipated, demand recovery is not easy, right?

▲ Tourist numbers have already decreased, and looking at statistics on people's movement, consumption contraction has been significant. We plan to prepare measures to stimulate consumption and revitalize the domestic market. In addition, I think the public should also engage in consumption stimulation activities. Compared to the MERS outbreak, there is an excessive sense of contraction. I hope people will overcome this anxiety and engage in normal consumption activities.

▲ Related to this, although offline sales have decreased, online sales have increased significantly. It is necessary to compare these ripple effects as well. Under the current circumstances, I think more consumption stimulation measures are needed. The government is reviewing various options.