[2022 National Audit] Lee Chang-yong "Continue Interest Rate Hike Policy to Prevent High Inflation Entrenchment"

Sustained 5-6% Inflation Rise Expected for Some Time
Domestic Economy and Export-Led Growth Momentum Weakening
Market Stabilization Measures If Foreign Exchange Concentration Increases

Bank of Korea Governor Lee Chang-yong is attending the National Assembly's Planning and Finance Committee's audit of the Bank of Korea held in Yeouido, Seoul, on the 7th, providing a business report.
[Photo by Yonhap News]

Lee Chang-yong, Governor of the Bank of Korea, announced on the 7th that he will continue the policy of raising interest rates to prevent the high inflation situation from becoming entrenched. Regarding the recent sharp rise in the won-dollar exchange rate, he emphasized that if the concentration phenomenon expands, market stabilization measures will be taken promptly.

At the Bank of Korea's audit by the National Assembly's Planning and Finance Committee on the same day, Governor Lee said, "The value of the pound has plunged to its lowest level in 37 years, and the depreciation of the yuan has also widened, intensifying instability in the international financial markets. In the domestic financial market, the won-dollar exchange rate has risen to a considerably high level, surpassing 1,400 won, while government bond yields have shown unusually large fluctuations, indicating high volatility."

Governor Lee explained that the domestic economic situation shows signs of weakening growth amid persistent high inflation and the impact of the global economic slowdown.

He pointed out, "Domestic inflation continues at a high level, with the consumer price inflation rate significantly exceeding 5% due to the ongoing rise in personal service prices. It is expected to maintain an upward trend of 5-6% for a considerable period, with the high exchange rate acting as an additional inflationary pressure."

He added, "The domestic economy is showing a weakening growth trend centered on exports, and there is high uncertainty depending on the future development of external conditions."

Governor Lee stated, "Although the financial market is showing high volatility, the resilience of the financial system remains sound, with financial institutions meeting regulatory standards for capital adequacy and liquidity ratios. However, the rise in interest rates has increased the debt repayment burden on vulnerable borrowers, posing a latent risk of deterioration in the loan soundness of some financial institutions."

Regarding future monetary policy, he said, "Following seven interest rate hikes totaling 2.0 percentage points since August last year, it is necessary to continue the policy of raising interest rates to prevent the entrenchment of high inflation."

On the extent and timing of future interest rate hikes, he added, "Decisions will be made after closely examining the impact of changes in external conditions such as major countries' monetary policy stances and geopolitical risks on domestic inflation, growth trends, and financial and foreign exchange markets."

Governor Lee emphasized that the financial and foreign exchange markets, which have shown instability due to the recent strong dollar, are being monitored and responded to 24 hours a day, and that market stabilization measures will be promptly implemented if volatility significantly expands due to concentration phenomena.

He also said that support measures for businesses and small merchants who may be adversely affected by interest rate hikes will continue to be sought.

In particular, Governor Lee stressed that the Bank of Korea will strive to become a more advanced central bank through future management personnel innovation and organizational culture improvement.

He said, "We are gradually implementing management personnel innovation measures, including delegation of authority, activation of information sharing and collaboration, enhancement of staff expertise, and improvement of evaluation systems. For regional headquarters, we will actively conduct region-specific research to establish their status as regional economic think tanks."