Lee Chang-yong Hearing Likely to Become Major Issue Over 'Interest Rate Hike'

Tomorrow's Hearing for Han Eun Chief Candidate
Questions Expected on Appropriateness of Base Rate Hike and Speed of Increase
Candidate Lee Signals Additional Hike

[Asia Economy Reporter Seo So-jeong] The biggest issue expected at the confirmation hearing for Lee Chang-yong, the nominee for Governor of the Bank of Korea, scheduled for the 19th, is the controversy surrounding the base interest rate hike. Following the Bank of Korea's Monetary Policy Committee's decision on the 14th to raise the base interest rate by 0.25 percentage points due to the severe inflation situation, many questions are anticipated regarding the pace of future rate hikes.

On the 18th, Asia Economy compiled written responses submitted by the nominee to questions from members of the National Assembly's Planning and Finance Committee, analyzing that the speed of future interest rate hikes will be a hot topic.

In response to a question from Yang Kyung-sook, a member of the Planning and Finance Committee from the Democratic Party of Korea, asking whether it is desirable to raise interest rates, the nominee indicated the possibility of further hikes by stating, "As the economy continues to recover and high inflation is expected to persist for a considerable period, it is desirable to conduct monetary policy in a way that promotes price stability through appropriate adjustments in the degree of easing going forward."

The interest burden on vulnerable groups, which is a concern during the normalization of monetary policy, is also a subject of debate. According to data submitted by the Bank of Korea to Jang Hye-young, a member of the Justice Party, it is estimated that if loan interest rates rise by 1.0 percentage point, the interest burden on self-employed individuals will increase by about 6.4 trillion won. The market expects the base interest rate to reach 2% this year.

In a written inquiry from Kim Ju-young, a member of the Democratic Party of Korea, the nominee responded, "It is important for the Bank of Korea to use interest rate signals to encourage economic agents to manage household debt on their own. However, it is difficult to solve the household debt problem solely through monetary policy, and appropriate use of macroprudential policy tools such as the Debt Service Ratio (DSR) regulation, along with micro-level policy responses such as debt restructuring and enhancing the effectiveness of the personal bankruptcy system, need to be considered together."

The discord between monetary policy and government policy is also expected to be a topic at the hearing, as the next administration is pushing for supplementary budgets and easing loan regulations amid the ongoing interest rate hike trend.

Additionally, responsibility may be raised regarding the nominee’s failure to promptly determine whether the Lone Star Fund qualified as an "industrial capital" (non-financial major shareholder) during his tenure as Vice Chairman of the Financial Services Commission. The nominee explained, "At that time, the target institution was located overseas, and the materials submitted by the Lone Star Fund were insufficient. There were significant difficulties in verifying the reliability of previously submitted materials through overseas financial supervisory authorities and foreign diplomatic missions."