Lee Ju-yeol "Interest Rate Response Capacity Still Intact... Trade War Expected to Ease This Year" (Comprehensive)

"Achieving 2% Economic Growth Rate, Still Difficult to Gauge"

Lee Ju-yeol, Governor of the Bank of Korea, is speaking at the New Year's Tea Party held at the Bank of Korea press room in Jung-gu, Seoul on the 2nd.

[Asia Economy Reporter Kim Eunbyeol] On the 2nd, Lee Ju-yeol, Governor of the Bank of Korea, stated, "We will maintain an accommodative monetary policy stance," and added, "I believe there is still room to respond with interest rate adjustments."

At a New Year's tea meeting held at the Bank of Korea in Jung-gu, Seoul, Governor Lee said, "It is not an urgent situation where the Bank of Korea needs to use other measures besides interest rate policy immediately; this is more about preparing in advance," and added, "We are putting all possible cards on the table to see what can be used depending on the situation." The Bank of Korea recently announced in its '2020 Monetary and Credit Policy Operation Direction' that it would strengthen research on the use of monetary policy tools other than interest rates.

Governor Lee said, "In other countries that have introduced zero (0) or negative interest rates, they cannot rely solely on interest rate policy, so they are intensifying research on non-interest rate tools," and added, "Our main tool remains interest rates, and we will observe how other countries proceed."

Although the Bank of Korea's base rate recently dropped to 1.25% per annum, sparking heated debates about the effective lower bound of the base rate and unconventional monetary policy tools such as quantitative easing, Governor Lee believes there is still room to respond.

He forecasted that the US-China trade war, which had a significant impact on the Korean economy last year, would ease this year. Governor Lee said, "The economic outlook is based on the assumption that the US-China trade war will ease." However, he did not expect a dramatic easing of the trade war. He pointed out that the biggest negative factor for the Korean economy last year was external factors, citing the trade war and the sharp decline in semiconductor prices. Furthermore, he predicted, "Although indicators are expected to improve compared to last year, since the Korean economy has already grown in size and follows global trends, it will take time for a rapid rebound."

When asked whether the economic growth rate of 2% was achieved last year, Governor Lee was cautious, saying, "We need to assess the real economic movements in December to gauge that." He also added that he considers this year's economic growth rate more important than last year's. Earlier, the Bank of Korea had presented an economic outlook projecting last year's economic growth rate at 2.0% and this year's at 2.3%.

Regarding the Bank of Korea's plan to form a dedicated research team and strengthen expert personnel related to central bank digital currency (CBDC) this year, Governor Lee explained, "Interest in CBDC has recently increased, and some countries are reviewing plans to issue it within a limited scope, so we are accelerating research." He stated, "We are not considering issuing CBDC in the near future, but due to the rapid pace of technological innovation, we want to prepare in advance." He also mentioned that research has already progressed considerably, and they plan to conduct more specific studies by understanding how other countries, such as China, are handling CBDC.

He indirectly expressed concerns about asset price increases due to the prolonged global low-interest-rate environment.

Governor Lee said, "Although it is a minority view regarding the US stock market, there is an assessment called a 'blow-off top' (a rapid rise just before a price crash)," and explained, "Liquidity is abundant, and voices expressing concerns about side effects are growing." He continued, "Concerns about the side effects caused by excessively low interest rates are not new," and added, "It is difficult to judge whether it can go further or if it is currently at a dangerous level."

In April this year, the terms of four Monetary Policy Board members of the Bank of Korea will expire simultaneously. Regarding this, Governor Lee said, "We do not yet know how many members will be replaced," and added, "It is not appropriate to assume that all four will be replaced and answer about the possibility of a disruption in monetary policy."

He also emphasized, "Among the Monetary Policy Board members, some have only experienced lowering interest rates and have never raised them," and said, "I hope the Bank of Korea achieves its goals, that is, a balance among the economy, prices, and financial stability, so that the economy performs well."

This content was produced with the assistance of AI translation services.