[2020 National Assembly Audit] Lee Ju-yeol: "Current Situation Is Not a Liquidity Trap"

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] Lee Ju-yeol, Governor of the Bank of Korea, stated on the 16th that "the economic recovery from the COVID-19 pandemic has not been strong enough to be felt," and clarified that the current situation is not a 'liquidity trap.'

Governor Lee attended the National Assembly's Planning and Finance Committee audit on the same day and said, "Although monetary policy has been implemented by lowering the base interest rate, and it is true that the economy has not shown a recovery strong enough to be felt, it is difficult to consider this a liquidity trap."

A liquidity trap refers to a situation where monetary policy becomes ineffective to the extent that lowering interest rates does not lead to a decline in market interest rates. Governor Lee explained, "When the base interest rate was lowered, it significantly affected loan-deposit interest rates and short- and long-term market interest rates," adding, "Since the interest rate transmission channel of the base rate cut is functioning smoothly, it is difficult to view this as a liquidity trap."

He also added, "The current crisis is a health crisis, which has caused such a significant shock to both demand and supply that the economy has yet to recover."