With April Monetary Policy Committee Meeting Approaching... What About the Absence of the Bank of Korea Governor?

Governor Lee Ju-yeol's Term Ends on the 31st
Successor Appointment Delayed Amid Moon-Yoon Conflict
Domestic Market Also Expected Within Q2
Interest Rate Hike Forecast from 1.25% to 1.5%

Governor Lee Ju-yeol of the Bank of Korea tapping the gavel [Image source=Yonhap News]

[Asia Economy reporters Seo So-jeong and Moon Je-won] Although the U.S. Federal Reserve (Fed) has begun to actively implement tightening policies to curb soaring inflation, concerns are growing in South Korea as a leadership vacuum in monetary policy management may become a reality.

Governor Lee Ju-yeol's current term ends on the 31st of this month, and considering the hearing schedule, a successor should be appointed by mid-month. However, the nomination of the governor has been delayed due to conflicts between President Moon Jae-in and President-elect Yoon Seok-youl. There is even a possibility that the Monetary Policy Committee will convene on the 14th of next month without a governor in place.

On the 17th, the Bank of Korea (BOK) held a situation review meeting chaired by Deputy Governor Park Jong-seok to assess the international financial market situation following the U.S. Federal Open Market Committee (FOMC) results and to examine the impact on domestic financial and foreign exchange markets.

Deputy Governor Park stated, "The outcome of this FOMC meeting was evaluated as somewhat hawkish (favoring monetary tightening), but it did not significantly deviate from market expectations." He added, "Given the accelerated normalization of major countries' monetary policies, the developments in the Russia-Ukraine war, and global supply chain disruptions, which all have considerable effects on domestic financial markets, growth, inflation, and the overall real economy, we will closely monitor the situation."

The financial market also expects that South Korea will raise its benchmark interest rate from 1.25% to 1.5% within the second quarter. Although the rate was held steady in February following three rate hikes since last year, the need for a rate increase has grown due to the Fed's active tightening and rising inflation concerns. South Korea's consumer price inflation rate has been above 3% for five consecutive months, showing an upward trend. According to the minutes of the February Monetary Policy Committee meeting, four out of six committee members, excluding Governor Lee Ju-yeol, indicated the possibility of further rate hikes.

The problem lies in the fact that, at a time when close coordination by monetary authorities is more necessary than ever, a leadership vacuum in the Bank of Korea's governor position may occur due to personnel conflicts between President Moon and President-elect Yoon. On the morning of the same day, Park Soo-hyun, the Blue House's Chief of Public Communication, publicly criticized the situation regarding the successor appointment by saying, "It is beyond common sense that President Moon is not exercising his designated personnel authority," further complicating the related discussions.

Kim Jung-sik, Professor Emeritus of Economics at Yonsei University, emphasized, "At a time when monetary policy is more important than ever, the president and the president-elect should cooperate and appoint a capable leader based on merit to avoid any leadership vacuum."

Meanwhile, it has been revealed that the Bank of Korea was excluded from the current Presidential Transition Committee. A BOK official stated, "There was no request for dispatch from the transition committee." Although the BOK is not a regular government ministry and is not necessarily required to be included in the transition committee, some express regret since the president holds the authority to appoint the governor, and the BOK oversees inflation and monetary policy, which are currently global issues.