Lee Ju-yeol "Monetary policy easing must continue to be reduced... Lee Chang-yong nominee is an outstanding person"

At Farewell Press Conference, "Possible Next Governor Inauguration at Next Month's Monetary Policy Committee"

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] "The recent high inflation trend is expected to continue for a considerable period. It is necessary to continue reducing the degree of monetary policy easing."

On the 23rd, Lee Ju-yeol, Governor of the Bank of Korea (BOK), hinted strongly at the possibility of a rate hike during a farewell press conference held ahead of the expiration of his term on the 31st. He stated, "There is still a significant need to reduce financial imbalance risks."

The governor said, "The U.S. Federal Reserve (Fed) has announced rapid rate hikes, and it is fortunate that the BOK has raised the base rate since August last year as a preemptive response, allowing some leeway in monetary policy operations for the time being. However, the situation ahead will not be easy."

He emphasized, "Although a rate hike is an unpopular policy because it leads to increased financial costs for economic agents, missing the timing could result in the entire national economy paying a much higher cost later, which is a lesson learned from past policy operations."

Last month on the 24th, the BOK kept the base rate unchanged and maintained this year's economic growth forecast at 3.0%, while significantly raising the consumer price inflation forecast from 2.0% to 3.1%, an increase of 1.1 percentage points. Governor Lee hinted at the possibility of further revisions, noting that the Russia-Ukraine war has caused a sharp rise in international oil prices, which could lower this year's economic growth forecast and raise inflation expectations.

He expressed concern, saying, "Last month, the forecast was made under the assumption that Russia would not invade Ukraine, but the invasion happened immediately afterward. Prices of raw materials such as oil and grains have already surged, and domestic export companies are facing difficulties." He added, "The Russia-Ukraine war will exert considerable upward pressure on domestic prices, and it is true that there are concerns it may also burden growth."

However, regarding some views that rate hikes would be difficult due to the downward revision of economic growth, he dismissed this by saying, "Monetary policy decisions consider not only growth but also inflation, financial stability, and other factors. Therefore, even if there is a downside risk to growth itself, it does not necessarily mean that rate hikes will be difficult."

◆ Lee Ju-yeol: "Nominee is outstanding in academic knowledge, policy operation experience, and international network" = Regarding President Moon Jae-in's nomination of Lee Chang-yong, Director of the Asia and Pacific Department at the International Monetary Fund (IMF), as the new BOK governor, Governor Lee said, "I just heard the news of the governor nomination announcement," and evaluated, "He is an outstanding person in many aspects, including academic knowledge, policy operation experience, and international network."

On concerns about a vacancy in the governor position due to the confirmation hearing schedule, he said, "Considering my own precedent of going through two confirmation hearings, I believe the new governor can take office by the Monetary Policy Committee meeting on the 14th of next month, when the base rate will be decided." He also said, "Since the Monetary Policy Committee is a collective decision-making body, even if a temporary vacancy occurs, monetary policy will be carried out without disruption," calling concerns about the leadership vacancy "unfounded."

Regarding criticism that the new government’s expanded fiscal spending might conflict with monetary policy, he said, "The new government is known to continue expanding fiscal support for COVID-19 affected groups," and added, "Monetary policy will adjust the degree of easing according to macroeconomic conditions, and fiscal and financial policies will provide selective support to vulnerable sectors. This policy mix, which has continued since last year, is expected to remain effective for the time being."

He cited the monetary policy decision meetings during the recent two years of the COVID-19 crisis as the most memorable moments of his term. Governor Lee recalled, "I remember the unprecedented policy measures that were the result of intense consultations with Monetary Policy Committee members, internal staff, the Deputy Prime Minister for Economy, and heads of related agencies to respond to the infectious disease crisis that was unimaginable two years ago," and added, "It was the process that started with the rate hike in August last year and has continued until now."

As the longest-serving BOK official in 43 years, Governor Lee spoke about the direction for the BOK’s development, saying, "The core driving force for any organization’s development is the capability of its human resources," and added, "If individuals continuously develop themselves to enhance their expertise and the organization supports this to maximize overall capability, the organization can develop."