Lee Chang-yong "Disagree with Doubts on Monetary Policy Effectiveness... Tightening Effect as Intended"

At the 1st Anniversary Meeting: "Market Interest Rates Below Benchmark Rates, a Global Joint Phenomenon"

"I cannot agree with the criticism that the effectiveness of monetary policy is questionable because market interest rates are lower than the base rate."

Lee Chang-yong, Governor of the Bank of Korea, made this remark during a press conference held on the afternoon of the 24th at the Bank of Korea headquarters located on Namdaemun-ro, Jung-gu, Seoul, marking his first anniversary in office. This day also coincided with the Bank of Korea's reoccupation of its main building in Jung-gu, Seoul.

Regarding concerns about market interest rates falling below the base rate, Governor Lee explained, "It depends on which interest rates you look at. Ultra-short-term rates such as Certificates of Deposit (CDs) have not deviated from historical ranges, and the significant drop in 1- and 3-month Monetary Stabilization Bond rates requires some observation. In other countries, the phenomenon of market rates falling below the base rate is common, but the extent is much smaller in our country."

He emphasized, "Considering factors such as household debt and the real estate situation, monetary policy has not been so tight as to be ineffective or to move in the opposite direction. The tightening effect is occurring as intended, and we need to monitor the impact on inflation going forward."

When asked about the possibility of discussing a currency swap during the Korea-US summit on the 26th, Governor Lee dismissed the idea, saying, "I do not expect it," and added, "A currency swap is not an urgent issue to be resolved right now."

He pointed out, "Korea is currently a creditor nation. We need to consider why a currency swap would be beneficial to us. If we keep talking about concluding a currency swap, it could lead outsiders to believe that there is a significant problem in our foreign exchange market."

Amid keen interest in the timing of interest rate cuts by the US and other major countries, Governor Lee maintained a principled stance on future monetary policy operations, stating, "We will look at the data." He explained that if the economy worsens in the second half of the year, there may be government pressure to lower rates, but decisions will be made based on data to support the Korean economy.

Governor Lee questioned, "In our country, there is a tendency to perceive doves (those favoring monetary easing) as bad people and hawks (those favoring tightening) as good people. Do doves emerge when working with the government?" He added, "We will decide monetary policy together with the Monetary Policy Committee by observing data and changes in market conditions to ensure the Korean economy moves in a positive direction."

He also expressed hope that Bank of Korea staff would break free from conventional frameworks, saying, "Historically, that may be the case, but I hope Bank of Korea employees can break that framework. It would be good to cut off the notion that meeting with the government means being led by them, especially with the new building."

Reflecting on his first year in office, Governor Lee said, "Over the past year, inflation rose unexpectedly, and we were busy dealing with issues in the foreign exchange and capital markets. Since we still need to monitor inflation and financial stability, I think it would be better to share my reflections after domestic and international uncertainties are resolved."

Regarding criticism that the Bank of Korea should raise its voice more as the country's top think tank on medium- to long-term issues, he added, "Right now, controlling inflation is the top priority, and stabilizing the market comes first. However, once the market stabilizes, we will actively voice our opinions on medium- to long-term structural issues."