Bank of Korea Monetary Policy Committee Member on Interest Rate Missteps: "Too Simplistic a Criticism"

Press Conference in Washington, USA
"Our Responsibility Includes Managing Not Only Domestic Demand but Also Price and Financial Stability"

Lee Su-hyung, a member of the Monetary Policy Committee of the Bank of Korea, is holding a meeting with the accompanying press corps of the G20 Finance Ministers' Meeting on the 24th (local time) in Washington DC, USA.
[Photo by G20 Finance Ministers' Meeting Accompanying Press Corps]

Lee Su-hyung, a member of the Monetary Policy Committee at the Bank of Korea (BOK), addressed the criticism that the BOK missed the timing for a rate cut, calling it "an overly simplistic point of view that monetary policy decisions should consider inflation and financial stability aspects such as the housing market and household debt management more thoroughly."

Lee made these remarks on the 24th (local time) in Washington DC, USA, where the Group of Twenty (G20) Finance Ministers and Central Bank Governors meeting was held, during a meeting with accompanying reporters.

He said, "People ask why the BOK does not lower interest rates when self-employed individuals and private consumption are struggling, but our mandate is to look at the overall economic growth rate, not just specific sectors," and questioned, "Can difficulties in certain self-employed sectors be resolved solely by lowering interest rates?"

He added, "We consider various factors and make the best decisions by taking into account the overall soundness and resilience of the economy." Although the argument that the BOK missed the timing for a rate cut has been highlighted recently due to delayed domestic demand recovery, he explained that interest rate decisions must comprehensively consider not only domestic demand but also inflation and financial stability management.

Last month, the BOK lowered the base rate by 0.25 percentage points from 3.50% to 3.25%, marking a pivot in policy direction for the first time in 3 years and 2 months since it raised the base rate by 0.25 percentage points from 0.5% to 0.75% in August 2021. The rate cut itself was the first in 4 years and 5 months since May 2020. Among the six Monetary Policy Committee members excluding the BOK Governor, five, including Lee, supported the rate cut. Lee joined the BOK in April and has participated in three monetary policy meetings including this month’s.

Regarding the third-quarter gross domestic product (GDP) growth rate coming in lower than the BOK’s forecast, Lee said, "Private consumption and facility investment sectors are on our expected path, but exports came out lower than expected, which was surprising," and added, "Monetary policy should vary depending on whether this is an adjustment due to a temporary shock or a shock that will persist in the medium to long term."

He continued, "At this point, the temporary shock explanation is more convincing, but we will closely monitor and reflect the maximum amount of data by the November Monetary Policy Committee rate decision."

Regarding the recently increased volatility of the won-dollar exchange rate, he said, "It is not a worrisome situation that would cause a real economy shock," but also expressed caution, stating, "Since we have to consider various uncertainties such as the U.S. presidential election, it is premature to say it is fine."